POWERFUL STUFF Country Energy’s 3,000 employees are the backbone of our business and the foundation for our success. Their knowledge and experience is demonstrated through the strength of our network and the level of customer service we provide.

The 2003-2004 Annual Report is testimony to our employees’ commitment to our corporate values – safety, teamwork, fun, accountability, excellence and enthusiasm.

Rod Turner, second year apprentice lineworker, Walcha Field Service Centre. OUR ORGANISATION Country Energy is a leading Australian energy services We are a competitive energy retailer in five states and corporation owned by the New South Wales Government, territories, with a product range that includes electricity, with around 3,000 employees and 750,000 customers. natural and bottled gas, internet services and energy advice. We own Australia’s largest power supply network, with 185,000 kilometres of powerlines serving three quarters Country Energy’s commercial success is driven by business of New South Wales – from Bega to Tweed Heads, west decisions that meet local priorities and the needs of our to Bourke and south to the River Murray. customers, employees, stakeholders and shareholders.

Country Energy’s retail operations span five states and territories, while our network operations cover country and coastal New South Wales.

Far North Coast Region

Northern Region

North Western Region

Mid North Coast Region

Central Western Region

South Western Region

Riverina Region

South Eastern Region ii COUNTRY ENERGY ANNUAL REPORT 2003–2004 CONTENTS

Our Organisation ii High Performance 2 Our Focus Areas in 2003-2004 4 Going Beyond the Challenge: The Year in Review 6 A Leading National Retailer 8 The Best Network Manager 10 A Valued Part of the Community 14 An Employer of Choice 20 Acclaimed for Our Environmental Initiatives and Safety 24 Our Board 30 Our Executive 31 Corporate Governance 32 Financial Statements Contents 40 Independent Audit Report 41 Statement by Members of the Board 42 Customer Information 74 Glossary of Terms 75 Index 76 Company Details 78

COUNTRY ENERGY ANNUAL REPORT 2003–2004 1 HIGH PERFORMANCE

THE BEST NETWORK MANAGER • Australia’s largest electricity network, across mountains, plains and deserts, with climates A LEADING NATIONAL RETAILER ranging from snow to extreme heat • Profitably acquiring new customers in five states and

• 185,000 kilometres of powerlines, 1.33 million territories poles, 110,000 distribution substations and • Customer satisfaction rating of almost 85 per cent 115,000 street lights (May 2004 survey)

• Invested $550 million in capital works projects • Blue chip customer base, with major customers between July 2001 and July 2004 and plan to including the world renowned Sydney Opera House, spend another $1.2 billion over the next five Melbourne’s Rialto Towers (the southern hemisphere’s years to continue to improve supply reliability tallest office tower), the CSIRO and Dairy Farmers and customer service

2 COUNTRY ENERGY ANNUAL REPORT 2003–2004 AN EMPLOYER OF CHOICE • 3,000 employees located in more than 130 customer and field service centres, as well as corporate offices in Bathurst, Port Macquarie and Queanbeyan, eight regional offices State wide and business centres in Sydney, Melbourne, Brisbane and Newcastle

• Created more than 230 apprenticeships between July 2001 and June 2004, providing long-term employment in local communities

A VALUED PART OF THE ACCLAIMED FOR COMMUNITY ENVIRONMENTAL • A decentralised structure, with no single head office, INITIATIVES AND SAFETY ensuring decisions are made locally • Dedication to becoming a world class safety organisation,

• Twenty-three (23) new customer and field service highlighted by a strong safety culture, unique Peak Safety centres opened since July 2001, restoring local service Strategy Group, team-based approach to driving safety levels across the State and environmental improvements, innovative reporting system and well-established public safety program • Acclaimed Country Support hardship assistance initiative, and unique Rural Advisory Group and • Leading environmental sustainability and renewable Regional Advisory Boards, keeping us in touch with energy initiatives, with a focus on reducing greenhouse customer concerns gas emissions, the efficient use of energy, demand management and commercial partnerships • Extensive sponsorship programs, including a touring partnership with the Sydney Opera House, the $35,000 • Purchasing 100 per cent green energy for more than 340 Country Energy Art Prize for Landscape Painting and Country Energy sites support for hundreds of local events and community initiatives each year

COUNTRY ENERGY ANNUAL REPORT 2003–2004 3 OUR FOCUS AREAS IN 2003-2004

• Customer satisfaction • Business efficiency • Reputation Energy is fundamental to home life and business activity. • Financial performance Meeting our customers’ energy requirements is a 24 hours-a-day, seven days-a-week job that requires skill and • Company culture dedication. The snapshot below provides an indication of our performance in doing that job – both our successes and areas where we intend to improve – in our focus areas for the year. During the year we established a Strategy Statement 2003-2004 to 2005-2006 – our blueprint for the future. The statement communicates our overall goals, values and priorities and has been translated into a CUSTOMER SATISFACTION set of measurable operational objectives, contained in • Final quarter domestic customer satisfaction rating corporate and divisional ‘dashboards’. of nearly 85 per cent – an improvement on The way forward in 2004-2005 involves a greater August 2003 emphasis on safety, employee development, business • Call centre service levels nine per cent below set target. performance and customer service. We will continue Our call centres receive around 5,000 calls on a normal day, to establish measures and targets that create a clear with more than 70 per cent of calls answered within common purpose across the business. 20 seconds Our dashboard provides a comprehensive framework 248 minutes that translates strategic objectives into a logical set of • Network reliability, at an average of lost per customer performance measures. The key performance indicators (SAIDI), bettered our target of are grounded by strategic objectives and set the platform 251 minutes for achieving our vision of becoming Australia’s leading Customer satisfaction remains a core priority in 2004-2005 utility business by 2006-2007. and is the focus of a major organisational initiative. More information on customer service from page 14.

4 COUNTRY ENERGY ANNUAL REPORT 2003–2004 BUSINESS EFFICIENCY

• Invested $220 million in our network to cement reliability improvements, including $197 million for new and upgraded infrastructure

• Customer ‘win to loss’ ratio 4 per cent above FINANCIAL PERFORMANCE target, with strong growth in the Victorian market • Profit after tax expense of $78.3 million

• Customer retention rate of 99.07 per cent • 8.9 per cent return on assets – 2.1 per was more than four per cent above target cent above target

• Retained more than 120 existing retail contracts See Financial report from page 40. throughout the year

See retail developments from page 8 and network improvements from page 10.

REPUTATION

• 93 per cent brand awareness – three per cent above target

• Exceeded Renewable Energy Credits target of 128,200 megawatt hours by 42 per cent

• Sourced 100 per cent of green power sales from new renewable generators for last compliance period (1 July 2002 to 31 December 2003)

Read about our renewable energy initiatives from page 24.

COMPANY CULTURE

• Rate of lost time injuries for every million hours worked (LTIFR) increased to 10.5 – 4.6 above target and up from 8.2 last year

• Workforce grew to 3,000-plus, including 60 new apprentices in 2003-2004. Twenty one Indigenous apprentices and six Indigenous trainees appointed since 2002

• More than 600 employees recognised with Service Milestone awards for a collective 12,130 years of service

• Implemented highly successful Powerful Staff Program

Becoming a leader in safety remains a core objective of our corporate strategy. Our safety focus has been taken to a new level, with a major safety project adopted, full review conducted and creation of a Peak Safety Strategy Group to work with independent advisers specialising in safety and behavioural change

Read about new employee development programs from page 20 and safety initiatives from page 24.

COUNTRY ENERGY ANNUAL REPORT 2003–2004 5 GOING BEYOND THE CHALLENGE – THE YEAR IN REVIEW

When Country Energy’s journey began in July 2001, million compared with the same period last year. For the we were set the challenge of improving service delivery third year running our after tax profit of $78.3 million was and reliability, viably competing against urban retailers, ahead of target. harnessing economies of scale and scope and promoting Country Energy’s commercial success is driven by business sustainable jobs growth. decisions that meet local priorities and the needs of our We have gone beyond the challenges set for us, towards customers, employees, stakeholders and shareholders. a position of industry leadership – a challenge we set for Our heartland is our customers and their communities. ourselves. To boost career opportunities and help people stay in This year we have taken huge strides towards achieving their local communities we recruited an additional 60 our strategic goal of delivering a safe and reliable service apprentices this year. As part of our award-winning to customers in town, country and coastal communities Indigenous Employment Program, eight of these – while also maintaining our traditionally strong financial apprentices were Indigenous Australians. performance. An excellent example of our dedication to serving our It’s an ambitious aim, considering we own and operate customers’ needs is our unique customer hardship Australia’s largest power supply network stretching across program, Country Support. The initiative has continued mountains, plains and deserts, with climates ranging from to offer a light at the end of the tunnel, assisting around snow to extreme heat. 4,000 customers and helping to slash disconnections for non-payment from 9,000 to around 3,600 in its first full This year we invested $220 million in our infrastructure year. By simply negotiating sensible, tailored payment to cement reliability improvements for our customers. plans for customers, Country Energy has also reduced the That included more than $197 million on new and costs associated with disconnections and reconnections improved infrastructure – reconstructing sub-transmission for non-payment. lines, upgrading strategic powerlines and building new zone substations. Major challenges remain for Country Energy, two of the most immediate being the search for alternative energy To return local, face-to-face services to the 1,500 sources and demand management – both emerging communities we support, we have opened nine new field trends we have anticipated. service and customer service centres, taking the number of new facilities opened since forming to 23. This year, we continued to turn green energy into a commercial reality, signing a 10-year commercial In conjunction with substantial spending on network agreement to buy electricity and greenhouse emission improvements and increasing our presence in regional reduction credits from the Eastern Star Gas natural gas New South Wales, we delivered strong financial results, power project at Narrabri. with profit before interest and tax improving by $92.3

6 COUNTRY ENERGY ANNUAL REPORT 2003–2004 Another important initiative is a joint program with the This year, we embarked on our most significant employee Department of Energy, Utilities and Sustainability (DEUS) development program ever, known as ‘Powerful Staff’. to develop a pioneering demand management project in The program provides face-to-face training in safety, the rural communities of Binda and Bigga in south eastern customer service and leadership and the opportunity New South Wales. The multiple benefits of this program to develop personal goals and contribute to business include helping residents save on their energy accounts, strategies for the future. reducing greenhouse gas emissions and delaying the need It has also given employees a greater appreciation of their for expensive network upgrades, by alleviating pressure direct involvement in Country Energy becoming Australia’s on the network. leading utility business. Country Energy has developed a completely new We would like to acknowledge the hard work and approach to safety and earmarked “becoming a leader dedication of our employees, without whom none of our in safety” as first amongst six top objectives in our 2004- achievements would be possible. 2007 Strategy Statement.

Sustained top-level performance in all key areas can be achieved through teamwork, focus and a commitment to continual improvement. We have now implemented a new performance reporting system, Dashboard, and Strategy Statement for 2004-2007, which provides structure and processes for achieving our ambitions.

Barbara Ward Craig Murray Chairman of the Board Managing Director

COUNTRY ENERGY ANNUAL REPORT 2003–2004 7 A LEADING NATIONAL RETAILER NEW FRONTIERS • Perisher Blue Pty Limited Building on our success with commercial and industrial • Shangri-la Hotel Sydney customers in the Australian Capital Territory (ACT), the • Dairy Farmers introduction of Full Retail Contestability in July 2003 has allowed us to offer domestic customers a range of LPG ROLL-OUT services including electricity, natural gas and internet Our range of products and services expanded during the services. year, with the roll-out of Liquid Petroleum Gas (LPG) to Our intention is to progressively grow our presence in central and southern New South Wales, starting in the the ACT and remain a long-term energy partner to its Riverina region in February. residents. This is just one example of our commitment to continually Our customer win to loss ratio in the national mass looking for ways to improve customer service levels and market remained positive, with strong growth in Victoria. provide customers with increased choice. Customers can now reap the benefits of having all their energy needs Sales activity was mainly driven by door-to-door sales supplied by one organisation. LPG is also very efficient, and telephone calls, enabling us to achieve significant providing instant heat and producing about 75 per cent penetration into markets outside our traditional retail less greenhouse gas than electricity generated from base. burning coal. Our online energy quoting and contract generation system was replaced during the year with a program known as ACME, helping us to provide competitive energy prices, total energy solutions, innovative pricing options, tailored service packages and first-rate customer service.

WINNING SPIRIT In the face of strong competition, our blue chip contestable customer base continued to grow this year.

Major customers now include –

• Sydney Opera House BRAND DEVELOPMENT Our new advertising and communications campaign – • Melbourne’s Rialto Towers ‘The Ripple Effect’ – was unveiled in February, promoting • Spotlight Stores Pty Ltd the idea that “everything we do flows through.” • Rydges Hotels Limited The campaign builds on our most valuable marketing • Macquarie Asset Services Limited tools – our employees and our close community ties. • CSIRO sites nationally Advertisements have featured on television, direct mail • Hardy Wine Company Limited promotions and in a series of print advertisements. • Endeavour Operations Pty Ltd, Cobar NSW The new tagline ‘Powerful Stuff’ has been added to our logo. 8 COUNTRY ENERGY ANNUAL REPORT 2003–2004 Storm tracker Our website’s storm tracker covers the largest area and contains the most sophisticated detail of any similar facility. Country Energy has taken advantage of the technology for many years to analyse storm activity and respond more quickly to damage to our power supply network.

A lightning strike’s location can be calculated within 200 metres, timing within 100 nanoseconds and magnitude measured in kiloamps. It can take as little as two seconds for a strike occuring anywhere in New South Wales to be displayed on a system operations console in Port Macquarie, Bathurst and Queanbeyan.

The number of visitors to the storm tracker typically UPGRADED BILLING SOFTWARE increases by 6,000 per To ensure superior levels of customer service, our month over the storm season Customer Information System (CIS) billing software, (October to March). Feedback Energy, underwent a significant upgrade in June. indicates residents right across New South Wales, as well Energy 7.2 features more than 200 enhancements as agricultural, commercial including a new quoting and contract generation tool and industrial businesses and known as ACME. organisations, regularly consult the storm tracker when scheduling farm or business operations and events.

ISP SERVICE The feature is unique because people can take Through CEinternet, our residential and business advantage of the technology themselves, from their customers can access the web and emails, conduct online office or home – whether they need to decide to transactions and publish their own web pages. The ISP continue aerial crop spraying, shut down building service has received positive feedback from customers construction work or bring in the washing. It is not in Victoria, New South Wales, Queensland and the only an information tool, but can assist people in taking Australian Capital Territory. preventative action and protecting the safety of their The introduction of ADSL Broadband last financial year property, business operations or family. has allowed customers to connect to the internet up to 20 times faster than dial-up internet services.

WEBSITE FACELIFT Our website www.countryenergy.com.au underwent a makeover this year, with enhancements designed to further improve customer interaction capabilities. “On a normal day,

Visitation to the site has increased by 20 per cent and the our call centres receive most popular feature is our storm tracker, which has the around 5,000 calls, with ability to monitor the direction, proximity and intensity of storm activity across New South Wales. more than 70 per cent of these calls answered within COUNTRY GREEN 20 seconds. This year, we’ve linked Households and businesses can make a contribution to all the centres to create a virtual the environment by purchasing Country Energy’s green energy solution, ‘country green’, from as little as 22 cents environment. This will assist with (including GST) extra per day for an average household. handling peak call volumes to better Customers can choose three levels of green energy: meet our customers’ needs.” • liteGREEN – 20c/day – 20 per cent renewable energy – Paul Brazier, General Manager Customer • livingGREEN – 50c/day – 50 per cent renewable energy Services. • pureGREEN – $1/day – 100 per cent renewable energy

COUNTRY ENERGY ANNUAL REPORT 2003–2004 9 THE BEST NETWORK MANAGER

$220 MILLION NETWORK Some major projects for 2003–2004 included – INVESTMENT Port Macquarie zone substation Our focus this year was to invest in the reliability of our (Mid North Coast region) unique regional electricity network, to meet the needs of Construction of a new $2.5 million zone substation to our diverse customer base. improve reliability and cater to growing load demands.

To enhance power supply reliability and cater for increased demands in key areas we invested $220 million in our network. The funding injection included more than $197 million for new and upgraded infrastructure, incorporating more than 250 specific capital works projects completed by June 2004.

Major initiatives included the conversion and re- construction of sub-transmission lines, construction of new zone substations and upgrade of strategic powerlines.

The age and diversity of our infrastructure is one of the greatest challenges we face, making the building and upgrading of our physical assets a vital part of our network strategy.

“Building and renewing network assets is The new Port Macquarie zone substation – the city’s third. critical to meeting the demands of our Tamworth (Northern region) Connected existing transmission lines between zone regional customer base.” substations within the Tamworth area to develop a ring system and minimise power interruptions. Also – Terry Miller, Group General Manager Networks. reconnected the Bendemeer/Kootingal substations to an independent 66kV transmission line, allowing for more accurate protection operations and improved supply reliability.

10 COUNTRY ENERGY ANNUAL REPORT 2003–2004 Bega (South Eastern region) Increased capacity at Bega Zone Substation by installing a new transformer, ensuring we can meet existing and future energy demands. Project involved the replacement of a 5MVA transformer with a new 30MVA transformer.

High-voltage line upgrades (Far North Coast region) Tweed sub-transmission network (from 33kV to 66kV) conversion – an extensive project spanning three years and involving the reconstruction of substations at Terranora, Banora Point, Cudgen, Murwillumbah and Tweed Heads.

Significant reconstruction of sub-transmission lines to allow higher voltage is also required. This year, substation work was carried out at Terranora, Banora Point and Murwillumbah.

Bourke transformer upgrade (North Western region) Two transformers replaced with one larger transformer (66/33kV) to improve supply quality by segregating two Thumbs up for team work high-voltage distribution systems and catering to load A significant achievement for our south western region growth. this year was the completion of stage one of a supply improvement project at Ivanhoe. The first of three stages was a triumph, with work finishing in just seven days - three days ahead of target.

Field crews from the Riverina and central western regions lent a hand to their south western counterparts to re- build 250 structures, using a fleet of eight elevated work platforms.

Because we have a 3,000-strong workforce and more than 130 customer and field service centres spread right across the State, we have the manpower, expertise and flexibility to tackle large projects or assist neighbouring regions when required.

SUPPLY RELIABILITY During 2003-2004 we aimed to keep the average time without supply from unplanned outages (a measure known in the industry as ‘NDN SAIDI’) to 251 minutes per customer. We bettered that target, with a result of 248 minutes. The average duration of each recorded The newly upgraded Bourke substation. interruption was 104 minutes. Country Energy continues to invest time and money into improving methods of collecting and recording data on supply interruptions. This has resulted in more accurate data on the number of customers affected by interruptions and all interruptions that exceed one minute in duration. Interruptions are now recorded by major powerline (or feeder) segment instead of the entire powerline, enabling the worst performing parts of a major powerline to be identified and investigated.

COUNTRY ENERGY ANNUAL REPORT 2003–2004 11 IMPROVED ASSET MANAGEMENT Our Asset Management and Operating Support System (AMOSS) reached practical completion in September when it was implemented in the Far North Coast region. Other regions are being progressively transferred to the new system by August 2004.

The AMOSS suite of applications was initiated in March 2002 to streamline and better manage the value, use and performance of our assets.

The system combines geographic information and asset management applications and interfaces with other business systems to provide accurate and timely data for field operations, works management, planning and regulatory reporting.

VIRTUAL CONTROL ROOM A three-year project to create a virtual control room, by linking our operations service centres at Queanbeyan, A tall order Bathurst, Dubbo and Port Macquarie continued this year. It took ten days in the planning, a cast of 40 and a Major milestones included - fleet of towering bucket trucks, but one of the two tallest free-standing power poles in the Southern • 24 hour, seven-day network operations at the Hemisphere was replaced without a hitch in December. Queanbeyan centre • Queanbeyan centre now interfacing with field crews The mammoth two-day operation to replace the in Young, Goulburn, Queanbeyan, Temora and Wagga 29-metre pole at Banora Point – in the State’s Far Wagga North Coast – was complicated by tide times, heavy road and river traffic and an osprey nest on a pole on • Commissioning of Wagga Wagga SCADA (Supervisory the southern bank of the Tweed River. Control and Data Acquisition) sites into a Distribution Management System (DMS) Our group general manager service delivery, Ken • Development of a strategy and design for our new Stonestreet, said the operation was “a great example dispatching software of teamwork and precision planning”. “Apart from coordinating the army of people involved, DESIGNING AHEAD we had to bring in a super-sized, 70-metre crane Our sub-transmission design team completed more from Toowoomba, a 55-metre bucket truck, traffic than $50 million of major powerline and substation control for the highway, specialist divers to direct boats design projects this year. Projects included the design and liaise with National Parks and Wildlife Services and construction of zone substations at Terranora, specialists to minimise stress on the ospreys while we Murwillumbah and Port Macquarie, and in the Tamworth, worked,” he said. Wagga Wagga and Young areas. “To everyone’s credit, the operation went smoothly, the new pole is in place and the osprey family are safe and PRICE AND EQUITY sound.” In July, we introduced a regulated retail price change for all electricity customers. In February, a retail price change was also introduced for regulated gas customers in the Wagga Wagga, Uranquinty, Cooma and Bombala regions.

All of the changes were within specific limits set by the New South Wales pricing watchdog, the Independent Pricing and Regulatory Tribunal (IPART).

We also introduced a uniform price list for all new connections from 1 July 2003, as part of our long term program to consolidate ‘inherited’ prices and ensure an equitable pricing structure for all customers.

12 COUNTRY ENERGY ANNUAL REPORT 2003–2004 In June, we welcomed determinations by IPART which Throughout the year, Country Energy’s internal security allowed for modest network price increases for five years, working group continued to develop and review security and regulated retail electricity price increases for three management plans for our most critical assets, including years, from July 2004. The price changes will help us to zone substations and major transmission and distribution continue to deliver safe and reliable power supplies to our lines. customers. Thanks to our information services (IS) security team, Over the next five years, we plan to invest more than improved protection and security practices have been $1.2 billion to enhance supply reliability and improve implemented to ensure security incidents, such as customer service. computer bugs and fraudulent access to systems, are contained to a minimal level. CRISIS MANAGEMENT AND The team’s vigilance and advanced systems helped to RECOVERY respond successfully to potential risks that affected other corporations worldwide this year, preventing downtime Our specialist security team undertook significant and information losses. work this year to enhance our business continuity management capability. This included the testing of a crisis management and recovery program in simulation, to ensure all employees involved in a crisis recovery are trained and prepared to respond.

Another major project was the distribution of photo identification cards to all employees. This process is now complete, improving our employees’ ability to identify themselves when requested by customers.

COUNTRY ENERGY ANNUAL REPORT 2003–2004 13 A VALUED PART OF THE COMMUNITY WE’RE MOVING IN Coupled with a program of opening additional customer service and field service centres, this has helped us Of all the things we grow in the country, towns are one restore service levels and strengthen our presence in of the most important. town, country and coastal New South Wales. For us, it’s Instead of moving out, we’ve been moving in. In the past an investment in our communities, our people and our three years, we’ve opened 23 new customer service and business in regional Australia. field service centres, including nine this year. This means During 2003-2004, we opened seven new customer better service for our customers and a better future for service centres and two new field service centres. the whole community. Where possible we have expanded our successful initiative of joining with one or more strategic partners – such RESTORING SERVICE LEVELS as local councils, water authorities, credit unions and Three years on, Country Energy still has no ‘head office’ travel agents – offering customers a broader range of – instead we operate out of more than 130 customer and services in one location. As well as providing benefits for field service centres, corporate and regional offices and customers, these partnerships ensure our centres remain business centres. cost effective.

New Customer and Field Service Centres

Far North Coast Region

Northern Region Gulgong (CSC) New centre in different North Western Region location opened on 20 April 2004.

Mid North Coast Region

GULGONG FORSTER Forster (CSC) New centre opened on MUDGEE 28 April 2004 as a joint venture with Mid Coast Central Water. Western Region

South Western Region Mudgee (CSC) Riverina Region Refurbished centre opened HAY on 20 April 2004 as a joint NARRANDERA venture with Westfund.

WAGGA WAGGA Hay (CSC) URANA New centre opened on 23 June 2004. CSC – Customer Narrandera Service Centre (FSC and CSC) South Eastern FSC – Field NAROOMA New FSC opened on Region Service Centre Narooma (CSC) 2 September 2003. Urana (FSC) BEGA New centre opened New CSC opened on New centre opened on 15 April 2004. 13 January 2004 as on 28 August 2003, a joint venture with shared with Urana Country First Credit Shire Council. Union and Travelscene. Bega (CSC) Refurbished centre opened on 14 April 2004.

14 COUNTRY ENERGY ANNUAL REPORT 2003–2004 For example, at the new Forster Customer Service Centre “Working on Country we have joined with Mid Coast Water, and in the small rural community of Urana our field service centre shares Support has been very premises with Urana Shire Council. The level of service rewarding. I feel like provided by these and other joint initiatives has been well received by both our customers and partners. I can do something positive for people who feel helpless – taking a situation and helping customers find a light at the end of the tunnel. We have a first name relationship with the majority of our customers and it’s great to see the program constantly evolving Opening a new field service centre at Narrandera. – reflecting what our customers are going through.” ENHANCED LEVELS OF – Dianne Barnes, Country Support Champion. CUSTOMER SERVICE A major program started in 2003-2004 to replace our SATISFACTION ON THE RISE 12 regionally-based appliance stores with customer service Our customer satisfaction rating was more than 80 per centres is now complete. cent for three of the quarters of this year, a testimony All Betta Electrical and Country Energy branded appliance to our commitment to delivering high levels of customer stores were sold to enable us to focus on providing service. enhanced levels of personalised customer service to The overall final quarter result was nearly 85 per cent, an regional customers. improvement on both the August 2002 and August 2003 In line with our overall values and business objectives, no results. Measurement of customer satisfaction increased jobs were lost and strong frontline customer service has from twice yearly to quarterly this year to enable more been maintained. seasonal detail to be collated.

As customer service is one of the four core priorities in A LIFELINE FOR BATTLERS the 2004-2005 Strategy Statement, customer satisfaction Since its launch in December 2002, our industry leading will be the focus of a major organisational initiative in Country Support program has enabled us to slash the coming year. This includes projects involving all areas disconnections and provide a lifeline to around 4,000 of the business, such as internal customer satisfaction customers who were struggling to pay their energy focus groups, defining our customer service culture and accounts. developing a customer charter.

The program is sound and sensitive, tailoring individual solutions for customers facing temporary or long- Customer Satisfaction term hardship. It offers help in accessing support and 85.0 concessions, affordable payment plans, automatic 84.5 84.0 payment channels (like Centrelink’s Centrepay facility) 83.5 and energy efficiency advice. 83.0 82.5 In response to increasing hardship relating to the drought, 82.0 we are currently developing new support services 81.5 – Busiplan for small businesses and Farmplan for farming Satisfied Percentage 81.0 families – building on the success of the existing program. 80.5 Feb-02 Aug-02 Aug-03 May-04

As well as helping us forge an even closer relationship Date of Survey with the communities we serve, Country Support has helped us save hundreds of thousands of dollars by avoiding the traditional ‘disconnect-reconnect’ cycle.

COUNTRY ENERGY ANNUAL REPORT 2003–2004 15 EWON CONSULTATIONS FINGER ON THE PULSE Customer consultations made by the Energy and Water Our Board and Executive regularly travelled to country Ombudsman New South Wales (EWON) decreased by and coastal venues this year, as part of our commitment more than 35 per cent, from 1,121 last year to 720 this to keeping in touch with our customers’ needs. reporting period. None of these progressed to dispute During these visits, they attend management meetings, status. visit employees at local facilities and meet with local Only 8.25 per cent of all consultations dealt with by councils, industry and community representatives to EWON related to Country Energy, a decrease from discuss first-hand issues facing their community. the previous period and well under our percentage of These visits ensure any business decisions we make market share. This is evidence of our success in resolving best meet the needs of all our stakeholders. customer concerns when they are raised within the organisation.

A total of 396 events required a Guaranteed Service Standards payment to a customer. On the road with EWON In March, representatives of the Energy and Water

Customer Complaints Ombudsman of New South Wales (EWON) were taken on a two-day, 1,000 kilometre tour of northern New 6000 South Wales to help them gain a better appreciation 5000 of the unique challenges facing some of our customers. It followed a similar tour of the Far North Coast in 4000 January. 3000

2000 Number of Complaints 1000

0 02-03 03-04 Year Network Retail

Please note, these figures relate to small business and small domestic customers.

caption

“One of the most

important aspects of In a unique move, the Ombudsman, Clare Petre, also Clare Petre, Energy & ‘took on a shift’ at our busy Queanbeyan call centre in Water Ombudsman good customer service NSW (far right) at October to help her gain an insight into our customer the Queanbeyan call is listening to and service processes. The opportunity allowed her to assist centre. working with our customers. customers with setting up new accounts, energy saving Our complaints handling processes tips, bill enquiries and advice for people facing financial difficulties. and relationship with EWON and customer representative groups are vital ingredients in achieving this.” – Paul Clark, Manager Customer and Stakeholder Relations.

16 COUNTRY ENERGY ANNUAL REPORT 2003–2004 “I’m very proud to represent the Indigenous community on the Customer Council. What I admire about Country Energy is how they involve customers and how the Customer Council takes on board issues impacting the whole community. Country Energy is not just about providing a service, they have the aspirations of its consumers at heart.” – Ann Weldon, Customer Council member and Chair of the Aboriginal Housing Office (AHO).

COMMUNITY CONSULTATION Regional Advisory Boards To encourage feedback about our activities and share Established to represent unique customer interests in our information with our stakeholders, Country Energy eight regions, the Rural Advisory Boards are convened works closely with local, state and national media, local by regional management teams and meet on a quarterly government and State Members of Parliament. We also basis. Members are from a variety of backgrounds – local maintain strong links with members of our advisory government, chambers of commerce, media, minority groups to help us keep in touch with customer concerns. groups, community groups and others – and receive regular briefings on our range of products, activities and network improvements. Meetings often include site visits Rural Advisory Group and tours of facilities. The Rural Advisory Group is central to our community consultation philosophy, acting as a vehicle to give rural and remote customers a voice. Customer Council Council members represent our diverse customer base The group was specifically established to gather feedback – from people living in rural and remote areas, industrial and identify issues affecting country people. There is and commercial customers and low-income households no formal legislative requirement to have this forum to Aboriginal and Torres Strait Islanders, consumer – Country Energy chose to create this unique advisory groups, people with disabilities and people from non- group. English speaking backgrounds. They contribute to policy, The Rural Advisory Group has been invaluable in helping planning and service decision-making relevant to small us gain a greater understanding of the needs of rural retail customers. and remote customers and is instrumental in assisting us to develop new business approaches and solutions that reflect our customers’ priorities.

Country Energy regularly consults the group on initiatives in their infancy, to ensure all benefits and implications for customers are considered.

Throughout the year, members visited various facilities across the State and were special guests at the opening of Hay Customer Service Centre in June.

Members of the group also represented Country Energy customers at the Independent Pricing and Regulatory Tribunal’s (IPART) retail and network public price forums.

At the end of 2004, two members will take part in our employee development program – Powerful Staff – by attending a two-day workshop in Coonabarabran.

COUNTRY ENERGY ANNUAL REPORT 2003–2004 17 GIVING BACK TO THE COMMUNITY Our $1.7 million community sponsorship program is the foundation of our regional investment initiative – providing a platform to give back to the country and coastal communities we serve. This program was supported by an additional $250,000 in donations and in-kind support for community projects across the State.

Environmental, social, sporting, educational, research and arts and cultural events and organisations benefited from our community sponsorship program this year. This investment reflects our position as a responsible Children in Orange enjoying Country Energy Babies Proms. corporate citizen that gives communities the support they need to develop and prosper. • Babies Proms on Tour

Examples of corporate and regional sponsorships – In early 2004, we launched a partnership with the Sydney Opera House, which allowed their renowned • Home town hero returns Babies Proms performances to be taken to regional The township of Condobolin welcomed home their New South Wales for the first time. favourite son and Australian Idol runner-up, Shannon The first stage of the pre-schooler chamber orchestra Noll, for a concert at the Condobolin Showground in performances started in Albury in late March and went April. Country Energy partnered with Lachlan Shire to Holbrook, Culcairn, Wagga Wagga, Cootamundra, Council to fund the event. The $100,000-plus raised Young, Parkes and Orange – playing to an audience of was donated to local charities. around 2,800 children. • Country Energy Food Affair, in association with Future tours of the northern and central regions will Orange Food Week take place in the second half of 2004. The Babies Now in its 13th year, the 2004 event positioned Orange Proms tours help bring quality services, arts and as a significant food and wine region. The Country entertainment from the city to the bush – something Energy Food Affair again proved popular, with more that isn’t seen very often. than 5,000 local and visiting guests enjoying produce • Lifeline from local suppliers. Through Lifeline, we have been able to provide support • $35,000 Country Energy Art Prize for Landscape to the north western and central western regions, Painting which are in the grip of a severe, ongoing drought. Now in its second year, the prize is acclaimed as the Our support has helped to develop and facilitate nation’s richest annual landscape painting competition. comprehensive one day seminars and workshops, Designed to raise the profile of regional artists who are aiming to promote the growth of social networks and often geographically isolated from city galleries, buyers, offer information on providers that can assist those in contacts and networks, the prize has injected a lot of need. interest and enthusiasm in country and coastal New South Wales. More than 350 entries were received for the inaugural prize in 2003, with entries hailing from more than 110 communities.

Winner of the 2003 Art Prize, ‘Degrees of Abstraction 1’ by Ian Bettinson. 18 COUNTRY ENERGY ANNUAL REPORT 2003–2004 minutes away. Our support helps with ongoing medical training, new first aid equipment and maintaining the telephone system that serves as a local lifeline in a medical emergency. • Kendall Swimming Pool After 13 years of campaigning and tireless fundraising, the Camden Haven community, on the Mid North Coast, enlisted our help in the final leg of construction of their new public pool complex. We donated labour and equipment to connect power to the facility, which now includes a 25-metre, six lane pool, toddlers’ pool and learn-to-swim pool. • Leeton Narrandera LYNKS Program This workplace based learning program is targeted at Year 10 students identified as “at risk” of failing to complete their current course of study. Students Peter Moore (left) and Ross Larsen from CareFlight accept a donation are provided with life and work skills together from Managing Director Craig Murray. with nationally accredited training. The program is strategically addressing the current shortage of regional skilled labour by providing training opportunities for local students. Since 1997, the program has seen • CareFlight and Westpac Life Saver Rescue the majority of students complete the program and Helicopter undertake further training, gain employment or decide Thanks to customers in central and southern New to stay at school. South Wales, our tick-a-box fundraising scheme has raised more than $223,000 for CareFlight since 2001, • AgQuip Field Days including a $76,000 cheque presentation in June. Gunnedah’s annual AgQuip Field Days are Australia’s The scheme provides an opportunity for customers to largest, drawing a crowd of more than 100,000 from make small donations each time they pay their energy New South Wales and southern Queensland. account. A similar fundraising program was launched in Country Energy’s exhibit includes a broad spectrum November in support of the Northern Region Westpac of customer service information – from power quality, Life Saver Rescue Helicopter. Money raised will help account enquiries and energy saving tips to vegetation replace the service’s ageing fleet. management and rural quoting as well as a strong public and farm safety focus. • Mogo Zoo With Country Energy’s help, Mogo Zoo on the South Coast is constructing a custom-made enclosure for two chimpanzees desperately seeking a new home. Holly and Lewis had outgrown their existing home at a private facility in Sydney, and despite a five-year, worldwide search, a suitable facility couldn’t be found. We have also assisted the zoo with monkey bars and a safe heating option for their Meerkat babies. • Camp Quality Our Grafton field service team continued a 15-year tradition in May when around 40 people donated their time and wages to Camp Quality. Country Energy matched the donation dollar-for-dollar and a cheque for $18,000 was donated to offset the cost of family camps for the 113 children in northern New South Wales affected by cancer. This year’s donation brought the total amount raised since 1989 to $187,000. • Glenreagh Heartstart program Our two-year sponsorship of this service ensures the continued provision of life-saving first aid to residents in the Glenreagh area, in northern New South Wales. Volunteers are fully trained in senior first aid, advanced resuscitation and defibrillation and can be the difference between life and death, considering the nearest hospital and ambulance base is up to 50 COUNTRY ENERGY ANNUAL REPORT 2003–2004 19 AN EMPLOYER OF CHOICE

Powerful Staff is an extension of the high performance More energy to our towns culture training undertaken by more than 400 employees This year, Country Energy took on 60 new apprentices last year. Regular performance coaching is now an across the State. This means local wage earners can stay important management tool across the business, helping in the country – which is good for business, good for to improve performance and develop leadership skills. the community and good for the future. BOOSTING REGIONAL JOBS GROWTH Building on our highly successful apprenticeship program, we employed 60 new apprentices in January 2004 to strengthen our service delivery teams and create local career opportunities. The new recruits are based at 50 different locations, from Bombala and Albury in the south, west to Cobar and north to Kyogle.

The program has seen more than 230 new apprentices join our team in the past three years. By investing in our apprentices’ skills, we are helping to retain locally- POWERFUL STAFF based, qualified skills in regional communities. We are During the year, we made significant progress toward also providing people with a foundation for long-term becoming an employer of choice. Central to this aim, we employment and career development. embarked on a major employee development program, with all employees invited to attend a two-day workshop Over the past three years, Country Energy has maintained in Coonabarabran, in the State’s north west. an average apprentice retention rate of more than 98 per cent. For example, of the 18 apprentices who completed By the end of June 2004, more than half our workforce their training in 2004, 17 were employed full time by had attended the program. Known as ‘Powerful Staff’, it Country Energy, with one gaining relevant employment aims to give employees – in his local community. • A better understanding of the role they play in Country Energy becoming Australia’s leading utility business “Powerful Staff is aimed • Face-to-face training in key areas such as safety, customer service and leadership at exploring how Country • The opportunity to develop personal goals and Energy can achieve more contribute to business strategies for the future. for our customers and our Our investment in the program is also benefiting the employees and become a stand-out Coonabarabran community. The workshop venue owners have employed two hospitality trainees as a direct result organisation. Programs like this show of the program and all produce is being sourced locally that you can achieve great results – two tangible examples of the ‘ripple effect’ Country Energy has on local communities. when you bring people together from across the company.” Employees have also initiated a fundraising program to benefit local charities and emergency services, which is – Mark Mulligan, High Performance Culture expected to raise around $40,000 by the end of 2004. Program Manager.

20 COUNTRY ENERGY ANNUAL REPORT 2003–2004 Winning Indigenous This year, the program – Employment Program • Won the State Government category of the Aboriginal Country Energy delivers on its commitment to encourage Employment and Business Award Indigenous employment through an innovative Indigenous • Was commended at the prestigious New South Wales Employment Program launched in 2002 – the only one of Premier’s Public Sector Awards, contested by more than its kind for the New South Wales energy industry. 96 organisations in eight categories

The program has delivered exceptional results in its first two years with the appointment of 21 Indigenous Apprentices and Trainees 2002-2004 apprentices and six Indigenous trainees.

The program’s success to date can be partly attributed Indigenous to the involvement of Indigenous recruitment services to 11% assist in sourcing applicants, pre-employment training and Non-Indigenous 89% mentoring successful applicants.

CELEBRATING 12,000 YEARS SERVICE More than 600 employees were acknowledged throughout the year for their long term service to Country Energy and its predecessors.

Service Milestone recipients with 30 years service or more were presented with gifts at celebrations in Goulburn and Coffs Harbour, while recipients with 10 to 25 years service were presented with awards during ‘Powerful Staff’ workshops in Coonabarabran.

Collectively, this year’s Service Milestone recipients have Life changing opportunity given 12,130 years of service – or the equivalent of 2.8 Two years ago, Rod Turner’s life was turned around. million working days – including 18 individuals who have Not only was he offered an opportunity to learn a had more than 40 years on the job. trade, he finally secured full-time employment that Albury employee Alan Nott (front) celebrates 40 years of would allow his family to remain in his hometown of service with workmates. Walcha, in the State’s north.

“To secure a job like this is unbelievable and the security it offers for the future is excellent,” he said.

“Many people have to leave country towns for the city because they can’t find work.

“I can’t fault the support Country Energy has provided me. Courtesy of The Border Mail Courtesy of The Border “Everything is going really well and I am getting through with flying colours”.

Rod learnt about Country Energy’s Indigenous Employment Program when he was approached by an employment agency to sit for a pre-selection test.

“I was really impressed by the effort taken to make sure people from the local community applied.

“They wanted to keep it local and keep the jobs in town,” he said.

COUNTRY ENERGY ANNUAL REPORT 2003–2004 21 NEW COUNTRY ENERGY AWARD The new Country Energy Award was introduced in March, marking a key milestone in the company’s development.

Other than general wage increases, the development of a competency-based classification structure and more appropriate on-call provisions will contribute to Country Energy becoming an employer of choice.

All changes, back-pays, the realignment of classifications Thirty years and loving and award condition changes were completed during every minute the year. For the past three decades Cobar team leader Bob De Our record of no time lost due to industrial disputes was Jong has braved rain, hail, fire and storm to provide a also maintained this year. safe and reliable power supply to the local community. He recalls constructing the power supply network to the ETHNIC AFFAIRS south (Mount Hope) and north west (Tilpa and beyond), We have demonstrated our commitment to meeting the camping out in shearers’ huts and the camaraderie of needs of our culturally-diverse customer base through working in a small team as highlights of his 30-year a range of ethnic affairs initiatives and our strategy career. statement – which affirms our aim to become a valued Bob says the formula for a good lineworker includes part of the community and an employer of choice. “reliability, diligence, versatility, hard work and a Initiatives addressing cultural diversity include: our award commitment to safety – all in equal parts”. winning Indigenous Employment Program; Cultural “Sometimes, you really are a “Jack of all trades”, Awareness Program; equal employment opportunity and but that’s what makes each day interesting.” diversity policy; interpreter services for Arabic, Chinese, Vietnamese, Italian, Greek and Spanish; Powerful Staff In an average week, Cobar’s five-man field crew could employee development program; Country Support find themselves working 140 kilometres west on hardship assistance initiative; sponsorship of groups and the Wilcannia Road, 265 kilometres north, towards events addressing cultural diversity; and unique customer Wanaaring, half way to Nyngan, on the other side of advisory groups. Mt Hope or 160 kilometres south west, near Ivanhoe. These initiatives will form part of our Ethnic Affairs Priority Statement for 2004–2008, which will be implemented during the next financial year and will incorporate linkages to these initiatives. EMPLOYEE SURVEY In December, we launched our second employee survey, once again giving all employees the opportunity to Dreams can come true provide open and honest feedback through a confidential As a trainee electrical technician at Leeton College and anonymous process. many years ago, our regional general manager, south Employees believe we perform well in regard to: safety; eastern, David Bellew would never have imagined freedom from harassment and discrimination; skills he would one day head a regional team of one of development; teamwork; environmental responsibility; Australia’s largest utilities. customer focus; team culture; and communication within “Country Energy has offered me some great career teams. opportunities,” David said.

Areas for improvement include: support across teams; “Apart from the size of the organisation, which in itself change management; internal recruitment processes; offers many opportunities, Country Energy has solid matching resources to workloads; exposure of senior training and professional development programs, which Executives to employees in the field; consistency of team allow people to continually improve.” leadership; and the level of positive feedback. There are 196 employees in the south eastern region Survey results were widely communicated and distributed, and David hopes his promotion will serve as an example paving the way for the development of localised action to others who aspire to ‘climbing the corporate ladder’. plans addressing identified issues.

22 COUNTRY ENERGY ANNUAL REPORT 2003–2004 TRAINING AND DEVELOPMENT To promote the skills, leadership ability and career prospects of our workforce, a number of training and development programs have been implemented.

The Frontline Management Program is designed to improve management and leadership skills and build better career opportunities. There are two distinct levels – certificate and diploma – and a significant component of the diploma is a workplace project requiring participants to identify, research and recommend a solution to a real business improvement opportunity. One hundred and seventeen employees graduated during the year. Photo courtesy of Dubbo Daily Liberal. Frontline employees benefit from our extensive Customer Greg Harris with Kevin Sweeney, Regional General Manager Service Programs, which are designed and implemented – North Western. by the Customer Service Operations team, while specialist training for all employees is conducted when necessary to High Achievers ensure employees have the necessary skills to deliver the • Dubbo TAFE 2003 Outstanding Graduating Student highest level of service. Award – Jon Neville, Dubbo • 2003 Apprentice of the Year, Wagga Wagga Chamber The Graduate Diploma Program is offered through of Commerce and Industry Outstanding Business Charles Sturt University (CSU) and is open to all Awards – Andrew Hinchcliffe, Wagga Wagga employees who submit an expression of interest. On completing the Graduate Certificate of Management, • 2003 Most Outstanding Trainee of the Year, Electro participants can undertake a Graduate Diploma of Group Training Awards – Heath Grebert, Ballina Management, followed by a Master of Management. • 2003 Dubbo TAFE Apprentice of the Year – Greg Two employees graduated in 2003-2004 and 25 Harris, Dubbo employees are currently enrolled in the program. • TAFE Worldskills Regional Champion (Mechatronics) Employees are also currently participating in a variety – Greg Harris, Dubbo of tertiary qualification programs through our Career • Dubbo TAFE WorkCover Safety Award – Jonathan Development Assistance Program. Studies range Donnelly, Cobar from diplomas through to degrees and masters, across • Gold medallist (mechatronics category), TAFE disciplines such as engineering, information technology, Worldskills Olympics – Greg Harris, Dubbo marketing, horticulture and law. Photo courtesy of Port Macquarie News.

Port Macquarie apprentices Jay Moore and Ben Gamblin with Area Coordinator Gary Woods.

Murwillumbah apprentices Martin Morgan and John Buttie.

COUNTRY ENERGY ANNUAL REPORT 2003–2004 23 ACCLAIMED FOR OUR ENVIRONMENTAL INITIATIVES AND SAFETY

A NEW LEVEL OF SAFETY • Better reporting Country Energy has developed a completely new • Integrating safety into employee development programs approach to safety, with our Board approving a major • Extensive training Safety Project and setting new targets for 2004-2005. • Greater management accountability A key element of our goal to be Australia’s leading energy We have also analysed the success of other companies business is to create a working environment where safety in promoting a strong safety culture and earmarked is our overriding value – and a way of life. First and ‘becoming a leader in safety’ as first amongst six top foremost this means ensuring all employees return home objectives in our 2004-2007 Strategy Statement. at the end of each work day as fit and healthy as when they arrived.

Amid a year of achievement and successes, there was a note of tragedy. For the first time, a Country Energy “Working together, every linesman lost his life at work. In August 2003, Gilgandra employee can contribute lineworker Brian Goss was electrocuted while working on overhead powerlines. Our thoughts and sympathies to making safety the first remain with Brian’s family, friends and workmates. and foremost priority. We are all responsible for safety and LOOKING TO THE FUTURE our attitudes toward our own safety The first priority was to undertake a full review of safety systems, processes, practices and culture. Internationally and the safety of others around us renowned safety experts, DuPont, were engaged to assist. WILL make a difference.” DuPont made very positive comments on our: solid – Ross Pooley, Safety Improvement Project Manager. processes for creating systems, procedures and standards; strong commitment to safety at senior levels; effective communications processes and; excellent post-injury and trauma management. NEW STRATEGY GROUP Central to the new safety approach is our newly-formed Recommendations and strategies to develop safer Peak Safety Strategy Group (PSSG) that will work behaviours included – with independent advisers specialising in safety and behavioural change. • Adopting a full safety management system • New management structure and safety improvement This peak group is not part of day-to-day safety teams improvement processes but will address safety from a strategic perspective – taking a high level view of all • Enhanced employee consultation safety related strategies, programs and management systems.

24 COUNTRY ENERGY ANNUAL REPORT 2003–2004 SAFETY PERFORMANCE agricultural and construction sectors, to promote power safe practices. Before Country Energy was formed, all three predecessor organisations had very good and improving safety records. Public safety education and awareness activities were also However, over the past three years our performance has implemented for other sectors of the community, such as not continued to improve at the expected rate. school children, motorists, boat owners, tradesmen, home renovators and gardeners. These activities were timed Our Lost Time Injury Frequency Rate (LTIFR) was up from to coincide with high risk safety periods such as school 8.2 last year to 10.5 this year. The Average Time Lost per holidays and the change of seasons. Key methods include Injury (ATL) was 11.7 days, up from 10.6 days. direct mail, advertising, media, trade shows and field The increase in LTIFR is attributed to an abnormal increase days, school visits, target group seminars and training in the number of lost time injuries for the year. The LTIFR sessions, training videos, kits and warning signage. has trended down over the final quarter and is expected to continue to do so, with a substantial improvement in the LTIFR for 2004-2005. “People visiting our TEAM APPROACH displays really appreciate Our team-based approach to driving further the chance to have a improvements in our safety and environmental one-on-one consultation. performance continues to be successful. We give advice on a wide range of Employees at each location have nominated Safety and Environment Local Employee Representatives (SELERs) issues including electrical hazards, to act as the eyes, ears and voice for local issues. vegetation, working safely near Eight Safety and Environment Regional Improvement Teams (SERITs) review our regional performance in health, powerlines and the risks associated safety, public electricity safety and the environment and with different types of machinery.” identify opportunities for improvements. – Peter Hyde, Senior Public Safety Coordinator. Representatives from each regional team regularly meet as part of the Safety and Environment Corporate Improvement Team (SECIT) to recommend strategies to achieve improvements across the organisation. SOURCING RENEWABLE We are currently in the process of appointing a chief ENERGY safety officer and eight regional safety coordinators. As part of our commitment to environmental sustainability and social responsibility, we currently purchase energy from renewable energy sources where we consider the INNOVATIVE REPORTING SYSTEM costs acceptable to our customers. As demand for green Since its introduction in July 2002, our system to manage energy increases and opportunities for purchasing become safety, environmental or network improvements and more readily available, the level of renewable energy suggestions has been used to manage more than 3,000 purchased will continue to rise. identified issues. The works improvement notification system, known as WIN, provides a single, consistent One example of a new green energy source is Lake electronic system that tracks and records resolutions or Bonney wind farm in South Australia. We have secured improvement actions taken. all of the wind energy from stage one of the wind farm, which will be the largest connected to the national electricity grid. PUBLIC SAFETY Our well established public electrical safety awareness Construction is progressing well, with more than plan is concentrated on maintaining a strong presence two thirds of the wind turbine generators for stage in the community to promote potential electrical hazards one erected, almost two months ahead of schedule. and advise how best to avoid electrical accidents. Generation from stage one is expected to commence in late July 2004, when the turbines will be commissioned. We continued to adopt the slogan Watch Out, Watch By the end of 2004, the wind farm will be producing Out, There Are Powerlines About to generate improved enough energy to power around 40,000 homes, or a levels of awareness, particularly in high risk areas such as township twice the size of Grafton. This capacity could crop-dusting and the use of tall machinery. more than double by mid-2005. Our specialist public safety officers have adopted a comprehensive and diverse approach, attending numerous farm field days, safety seminars and community events and working with identified risk groups, such as the

COUNTRY ENERGY ANNUAL REPORT 2003–2004 25 Renewable Energy Sources

CONDONG – SUGAR CANE

BROADWATER – SUGAR CANE

Northern Region Far North Coast Region

NYMBOIDA HARWOOD – COPETON DAM SUGAR CANE North Western Region

DUBBO ZOO OAKY

Mid North Coast Region

BURRENDONG DAM

CHICHESTER DAM

Central Western Region

BLAYNEY CAMELLIA – FOODWASTE

South Western Region CROOKWELL BURRINJUCK DAM Hydro Riverina Region Biomass Plants

QUEANBEYAN BERRIGAN Wind Farms South

LAKE BONNEY Eastern Region Solar Farms

“Our partnership with Clean and green Eastern Star Gas is Country Energy is a partner in two New South Wales wind helping to reduce farms – at Blayney and Crookwell, both in regional New South Wales. Each year, our wind farms save thousands greenhouse gas of tonnes of carbon dioxide that would otherwise have emissions, enhance employment been produced from coal-fired power stations. opportunities in regional The area between Crookwell and Gunning is one of the communities and establish the most significant wind resources in New South Wales. Output is approximately 8,000 megawatt hours of energy, infrastructure to support future or enough power for around 1,060 average Australian industry growth.” homes. This wind farm has been a commercial success since its installation in 1998 and now produces enough – Greg Brown, Development Manager electricity to support the town of Crookwell. Infrastructure. The 15 turbines used at Blayney are among the most efficient in operation in Australia. Collectively, they have a nominal capacity of 10 megawatts, which is enough to supply the annual electricity needs of 3,500 average Australian homes, or a Shire as large as Blayney.

26 COUNTRY ENERGY ANNUAL REPORT 2003–2004 SUSTAINABLE PARTNERSHIPS Commercial partnerships which deliver environmental Demand management benefits and regional sustainability continued to be a Country Energy has joined forces with the Sustainable focus area during 2003-2004. Energy Development Authority (SEDA), now the Department of Energy, Utilities and Sustainability • Sustainable Energy Development Authority (DEUS), to trial a unique demand management (SEDA), now the Department of Energy, Utilities initiative in the neighbouring rural communities and Sustainability (DEUS) of Binda and Bigga, in the State’s south east. We renewed our partnership with SEDA/DEUS to assist the growing number of businesses investigating Benefits include helping residents to save on their the feasibility of adopting cogeneration for their power bills, minimising greenhouse gas emissions and commercial activities. Cogeneration is a valuable tool reducing pressure on the local power supply network, in reducing energy demand and losses to the local thereby delaying the need for expensive network electricity network. It can help businesses double upgrades. energy efficiency, halve power costs and reduce We are working closely with DEUS to investigate carbon-dioxide emissions by two-thirds. various projects that will reduce energy costs for • Renewable Australia Pty Ltd residents and alleviate demand on the network. In June, we extended our exclusivity agreement until Potential initiatives include: replacing regular 2009, reflecting our commitment to further develop incandescent light globes with longer lasting, less and commercialise technology to recover methane gas energy intensive compact fluorescent light globes in from landfill sites – primarily smaller regional sites. areas most used during winter evenings; encouraging The technology, which will continue to be the use of alternative fuels for heating, such as gas; benchmarked against current practices, will encourage and investigating the use of Liquid Petroleum Gas to better landfill management, create regional jobs, generate electricity and provide a supplementary power improve regional infrastructure and safety and source to local homes. assist in reducing greenhouse gas emissions. A rebate scheme for dated electric cookers and refrigerators is also being considered, whereby money • Eastern Star Gas will be available for more efficient appliances in return In October, we signed a long-term power purchase, for the removal of energy intensive appliances. green product off-take and network connection agreement with strategic partners, Eastern Star Gas, for their 10 megawatt Narrabri power station development. The power station will be commissioned in July 2004. This agreement has provided the first commercialisation opportunity for the New South Wales regional natural and coal seam methane gas fields. REDUCING GREENHOUSE Country Energy will purchase all of the generation output and NSW greenhouse gas abatement certificates GASES from the new power station, which will provide enough Our greenhouse gas reduction strategies and initiatives energy for almost 13,000 average Australian homes to help customers use electricity more efficiently continue and deliver approximately 36,000 tonnes of greenhouse to evolve and grow to meet market requirements. This gas abatement annually. This will reduce greenhouse continual improvement approach ensured we met our gas emissions by around the same amount as taking organisational greenhouse gas abatement goals, Federal 12,000 cars off the road. Government renewable energy targets, the New South Wales Government’s greenhouse gas reduction targets Country Energy continued to seek companies wishing to and National Green Power accreditation targets. enter into partnerships for the development of renewable Our Renewable Energy Credits (RECs) target of 128,200 energy and greenhouse gas abatement projects. megawatt hours was exceeded, as was the New South Throughout the year, Country Energy identified a number Wales Greenhouse Abatement Credits (NGACs) target of of potential partners with appropriate technologies, 492,902 tonnes. expertise and financial capabilities. During the last compliance period for green power sales we sourced 100 per cent of green power sales from new renewable energy generators.

COUNTRY ENERGY ANNUAL REPORT 2003–2004 27 GREEN FLEET SAVING RESOURCES Our light motor vehicle fleet was reviewed this year, with Waste management practices improved across the the objective of identifying the most effective way to organisation during the year, with paper and cardboard utilise resources. recycling increasing by 135 per cent on figures for 2002- 2003. This increased volume of waste to a recycling The gas vehicle fleet has increased by 28 per cent, to source effectively reduced the volume that would have 150 vehicles in total, saving an estimated 40 tonnes per been sent to landfill. annum in greenhouse gas emissions. From 1 January 2004, Country Energy has committed to To further reduce the impact of our fleet on the purchasing 100 per cent green energy for more than 340 environment, a hybrid powered vehicle was purchased sites across New South Wales as part of its commitment and trialled throughout the State. The vehicle proved to the environment. cleaner and cheaper to run and there are plans to purchase seven more vehicles during the next financial We are also implementing other energy saving initiatives, year. such as energy audits of all corporate and regional offices, in line with the Government Energy Management Policy An extensive heavy fleet capital works program has (GEMP) to reduce energy consumption in government also been conducted, with a view to ensuring a modern buildings by 25 per over the next two years. These and safe fleet that complies with industry standards. initiatives are expected to reduce energy consumption This complements the new fleet management system, and save more than 3,500 tonnes of greenhouse gas which was introduced to enhance ongoing monitoring emissions by June 2006. This is equivalent to taking and reporting. 1,054 cars off the road. CUSTOMERS PLAY A PART TOO Greenhouse gas emission information has been displayed SITE REMEDIATION Work has continued with the Clarence River County on all energy accounts for the past 17 months, ensuring Council to construct rock ramps downstream of customers are aware of the environmental impact of Nymboida Hydro Power Station. The ramps maintain their electricity consumption and can take positive steps pools and riffles, helping to reduce bank erosion and towards reducing consumption. The graphs show the create fish habitat in the Blaxland Creek system. amount of electricity used and the equivalent amount of greenhouse gases emitted. We are also working with the newly-formed Blaxland Creek Rehabilitation Project Steering Group Committee The community’s increased awareness of greenhouse – formed by the Department of Infrastructure Planning gas emissions and the need to use energy efficiently has and Natural Resources (DIPNR) and managed by EnviTE contributed to a steady rise in the number of customers – to ensure their proposed works are co-ordinated who have taken advantage of our green energy solution with Country Energy proposals. The formation of the – country green. committee and the assistance provided by Country Energy has been welcomed by affected land-owners adjacent to Blaxland Creek.

Protecting koalas nesting platforms for endangered osprey at Johns River and Blackmans Point. By providing a new home for Volunteers from Country Energy, Hastings Council and the birds we removed the risk of the ospreys contacting the Port Macquarie Koala Preservation Society banded powerlines – saving their lives and improving supply together in May to plant 100 koala food trees near an reliability. off-creek storage dam at Port Macquarie.

The working bee was part of a tree removal and replacement program aimed at improving the local power supply and developing a safe and viable environment for local fauna in the area.

When identified trees were trimmed, volunteers from the Koala Preservation Society collected suitable leaves for their koala hospital. Other tree trimming debris was mulched and used on site to preserve the integrity of local bio-diversity.

This project complemented several other nature conservation projects initiated by our Mid North Coast team, including the installation of power poles with Robert Scott, John Barber and Mid North Coast Regional General Manager Peter Bereicua planting koala food trees in Port Macquarie.

28 COUNTRY ENERGY ANNUAL REPORT 2003–2004 ASHFORD POWER STATION On-site meetings have been held with the Department of Infrastructure, Planning and Natural Resources in order ASH STOCKPILE REMEDIATION to prepare an Environmental Management Plan for the The requirement by the Department of Environment and site jointly with other stakeholders. These include the Conservation to remove ash from its present location Department of Environment and Conservation and the adjacent to the Severn River, is progressing smoothly Department of Lands and Inverell Shire Council. following a successful three-month trial. We have provided access to the ash stockpile to a company that is mixing the ash with manure to provide a compost mixture used for agriculture.

Negotiations to use waste ash in road base works are looking promising, providing an opportunity to convert the previous waste material into a usable commodity and significantly reducing the cost of removal to our organisation.

Protecting endangered species The Snowy Mountains’ endangered mountain pygmy possum population now has two new corridors to move safely around the Mt Blue Cow area thanks to a joint project with the Department of Environment and Conservation.

The crossings are helping to re-establish a link between habitats that were isolated following the construction of an original underground service corridor built 15 years ago. Another benefit is the reduced risk of possums becoming prey to foxes and feral cats that use cleared corridors as convenient travel routes. (Above left) A pygmy possum safety corridor The work was undertaken in conjunction with the under construction in the Snowy Mountains. construction of a new underground cable between Mt Blue Cow and Guthega, as a result of the overhead powerline being burnt down during bushfires.

COUNTRY ENERGY ANNUAL REPORT 2003–2004 29 OUR BOARD

Barbara Ward, Craig Murray, The Hon Michael Lee, Greg McLean, Tim Sullivan OAM, Rowena Sylvester and John Wearne AM

BARBARA WARD TIM SULLIVAN OAM BEc, MPol. Econ Director since 6 June 2001 Chairman since 6 June 2001 Chairman of the Safety and Environment Committee Member of the Audit and Risk Committee ROWENA SYLVESTER Chairman, EMMLINK Pty Limited B. Bus Chairman, Country Energy Gas Pty Limited Director since 1 March 2002 CRAIG MURRAY Chairman of the Audit and Risk Committee Managing Director since 8 June 2001 JOHN WEARNE AM Member of the Safety and Environment Committee Director since 6 June 2001 Director, EMMLINK Pty Limited Member of the Audit and Risk Committee Director, Country Energy Gas Pty Limited

THE HON MICHAEL LEE BSc, BE (Hons), FIEAust Director since 1 March 2002 Member of the Safety and Environment Committee

GREG MCLEAN Director since 30 April 2002 Member of the Safety and Environment Committee

30 COUNTRY ENERGY ANNUAL REPORT 2003–2004 OUR EXECUTIVE

Craig Murray, John Adams, Terri Benson, Ron Craggs, Justin De Lorenzo, Bill Frewen, Gary Humphreys, Terry Miller and Ken Stonestreet

CRAIG MURRAY JUSTIN DE LORENZO Managing Director Group General Manager Finance and Business Member of Board of Directors Development B Com, ACA, ASIA • Manages the overall business and is focused on • Responsible for finance, energy trading, management customer service and returning services to country and accounting, risk management and business coastal New South Wales development

• Leadership, strategy, business performance, corporate BILL FREWEN values, shareholder relations and stakeholder interfaces Group General Manager External Relations BA LLB JOHN ADAMS • Responsible for corporate affairs, media and Group General Manager Retail communications, customer and government relations, Dip. (Elect Eng), B Bus. FIE Aust. and legal services

• Responsible for Country Energy’s retail business, GARY HUMPHREYS including sales and marketing functions, national and Group General Manager Corporate Operations residential sales, retail pricing and product development • Responsible for corporate marketing, strategy and TERRI BENSON planning, regional development, property and fleet Group General Manager Regulatory Affairs B Bus., CPA management, and corporate support services

• Overall responsibility for regulatory strategy, regulated TERRY MILLER pricing, wholesale market regulation and licence Group General Manager Networks compliance, and Country Energy’s gas networks BE, MBA, CP Eng, MIE Aust, FAICD RON CRAGGS • Responsible for the commercial and operational Group General Manager Corporate Services and Company performance of Country Energy’s electricity networks, Secretary BE (Hons), Grad. Dip.Mgt. network asset management strategy and policy, sub-transmission system design, development and • Responsible for corporate governance and services construction, logistics, and specialised technical services to the Board, and executive oversight of safety, environmental and quality systems and organisation KEN STONESTREET development Group General Manager Service Delivery BE (Hons), CP Eng • Responsible for core service delivery functions including regional field work and safety management, system operations and network control, call centres, billing and customer service centres, and information technology services

COUNTRY ENERGY ANNUAL REPORT 2003–2004 31 CORPORATE GOVERNANCE

ESTABLISHMENT SHAREHOLDERS Country Energy is a statutory State Owned Corporation In accordance with the provisions of the State Owned (SOC) under the State Owned Corporations Act 1989, Corporations Act 1989 and the Energy Services established by the Energy Services Corporations Act 1995. Corporations Act 1995, Country Energy has two Under this Act, the principal objectives of Country Energy shareholders each holding one share of $1.00. The are: shareholders are the New South Wales Treasurer and the New South Wales Special Minister of State. Shares in an (a) to be a successful business and, to this end: energy services corporation may not be sold or otherwise (i) operate at least as efficiently as any disposed of except to eligible ministers. comparable businesses, (ii) maximise the net worth of the State’s investment CONSTITUTION in it, The Constitution of Country Energy comprises a (iii) exhibit a sense of social responsibility by having Memorandum and Articles of Association which address regard to the interests of the community in which it all of the areas normally covered within a Corporations operates, Law company, including the administration of shares, (b) to protect the environment by conducting its general meetings, directors, chief executive officer, operations in compliance with the principles of remuneration, meeting and administrative procedures, ecologically sustainable development contained in company secretary, dividends, and indemnities of directors section 6 (2) of the Protection of the Environment and officers. Administration Act 1991, (c) to exhibit a sense of responsibility towards regional DIRECTORS development and decentralisation in the way in which The Energy Services Corporations Act provides that the it operates, Board consist of: (d) to operate efficient, safe and reliable facilities for the distribution of electricity and other forms of energy, • the chief executive officer, and (e) to be an efficient and responsible supplier of electricity • one director, to be appointed by the voting and other forms of energy and of services relating shareholders on the recommendation of the portfolio to the use and conservation of electricity and other Minister and the Labour Council of New South Wales, forms of energy, and (f) to be a successful participant in the wholesale and • at least two, and not more than five, other directors, retail markets for electricity and other forms of energy to be appointed by the voting shareholders at their and for services relating to the use and conservation discretion. of electricity and other forms of energy. One of the directors referred to in the last dot point is appointed by the voting shareholders as chairperson of A statutory SOC is declared to be an excluded matter the Board. for the purposes of section 5F of the Corporations Act 2001 (Commonwealth) in relation to the whole of the The voting shareholders have appointed five independent corporations legislation other than certain provisions non-executive directors to the Board of Country Energy, relating to financial products, or as may be otherwise for fixed-period, renewable terms, as shown in the table. declared, in the Regulations under the State Owned The Board is accountable to the voting shareholders in the Corpations Act 1989. manner set out in Part 4 of the State Owned Corporations Act 1989 and in the Constitution of Country Energy. 32 COUNTRY ENERGY ANNUAL REPORT 2003–2004 COUNTRY ENERGY DIRECTORS Audit & Risk Safety & Environment Director Current Appointment Board Committee Committee B K Ward 1 Mar 03 to 28 Feb 06 Non-executive Member Independent Chairman C F Murray Concurrent with appointment Executive Member as CEO Managing Director

M J Lee 1 Mar 02 to 28 Feb 05 Non-executive Member Independent T J Sullivan OAM 1 Mar 03 to 28 Feb 06 Non-executive Chairman Independent R A Sylvester 29 Feb 04 to 28 Feb 05 Non-executive Chairman Independent J H Wearne AM 29 Feb 04 to 28 Feb 05 Non-executive Member Independent G McLean 14 Apr 04 to 13 Apr 05 Non-executive Member Labour Council nominee

DIRECTORS’ INTERESTS INDEMNITIES Directors are required to disclose any material contract Under the State Owned Corporations Act, SOCs are able or relationship with Country Energy and to disclose all to indemnify their directors and officers against certain companies or other organisations with which they are liabilities incurred in the course of their employment. professionally involved. Details of directors’ interests The indemnity cannot be issued without the approval are maintained by the company secretary in a register of the voting shareholders. which is included in the agenda of every Board meeting. Currently, all Country Energy non-executive directors The constitution provides for procedures to be followed have been issued with a Deed of Indemnity in the form in the event of a conflict or a perceived conflict arising approved by the shareholders. Application has been between a director’s interest and a matter before the made for approval to issue Deeds of Indemnity to the Board. managing director and other officers of the corporation fitting the criteria detailed in Treasury Policy TPP03-6.

BOARD PERFORMANCE REVIEW The Deed of Indemnity provides cover against the The Board regularly conducts a formal review of following types of liability: its performance by means of an internal survey. These reviews seek to identify where improvements • Civil liability, but only if such liability is, or was, incurred can be made and assess the quality, timeliness and by the indemnified party in his or her capacity as an effectiveness of information made available to directors. officer acting in good faith; • Costs and expenses incurred by the indemnified party NON-MANAGEMENT in defending proceedings, whether civil or criminal, in which judgement is, or was, given in favour of the MEETINGS indemnified party, or in which the indemnified party The non-executive directors meet at least once annually was acquitted; without management in a forum intended to allow for open discussion on Board and management performance. • Costs and expenses in connection with any application This is in addition to the consideration of the performance in relation to a proceeding in which a court grants or and remuneration of the managing director, which is granted relief to the indemnified party. conducted by the Board in the absence of the managing Country Energy also purchases insurance cover for director. directors’ and officers’ liability, professional indemnity and employment practices. DIRECTORS’ REMUNERATION Directors’ remuneration is determined by the New BOARD COMMITTEES South Wales Government and is currently in the form The Board has formed two committees to address certain of a cash stipend without ‘at risk’ elements or non-cash matters in close detail and to make recommendations to emoluments. Country Energy makes payments to the the Board. The committees have delegated authority as directors in accordance with these directions under the specified in their respective Terms of Reference. framework of the organisation’s normal payroll system. Out of pocket expenses related to attendance at meetings are reimbursed.

COUNTRY ENERGY ANNUAL REPORT 2003–2004 33 AUDIT AND RISK COMMITTEE • The impact of Country Energy’s activities on the environment and the achievement of ecologically The Terms of Reference for the Audit and Risk Committee sustainable development; require that the committee comprise only non-executive directors; that the chairman of the committee may not • Any other matter considered by the committee to be of be the chairman of the Board; and that management relevance to their objectives; representatives may be required to attend a meeting at and may exercise the Board’s authority in relation to: the request of the committee. • Monitoring and directing the health, safety and The committee is required to advise and report to the environmental performance of the organisation; Board in relation to: • Compiling, reviewing and submitting reports relating • Risk management policy and strategy; to health, safety and environment matters to external bodies as required; • Wholesale energy trading policy and strategy; • The procurement of independent professional advice • Debt management policy and strategy; as required for the proper fulfilment of the committee’s • Licence and legal compliance policy and strategy; duties; and may exercise the Board’s authority in relation to: • The procurement of information relating to safety • Determining, implementing and reviewing internal audit and environmental aspects of the operations of the procedures including the selection and appointment of company; the management assurances services agency; • Other matters referred by the Board to the committee. • Determining, implementing, and reviewing the audit The committee meets regularly with management plan; and receives detailed reports on all significant safety • Wholesale energy trading and retail supply contract and environmental incidents and the actions taken to decisions within the limits specified by the Board; address any areas of concern. In response to the Board’s • The procurement of independent professional advice strategy of placing safety as a top priority, the committee as required for the proper fulfilment of the committee’s has sought detailed advice on safety performance and duties; management from external experts and adopted several • The procurement of information relating to the new safety initiatives. operations or financial situation of the company; • Inquiries into any matter where issues of integrity RISK MANAGEMENT appear to arise. FRAMEWORK The Board has engaged KPMG to provide management Risk Management remains the key focus area of our assurance (internal audit) services. The external auditor is Board – and its non-executive Audit and Risk Committee the New South Wales Audit Office. Officers from both the in particular. internal and external auditors are invited to attend every During the year, we continued to implement an meeting of the committee. organisation-wide risk management framework. The committee regularly meets with auditors (internal This included the introduction of risk management and external) in the absence of management to discuss software to assist in managing risk at both the strategic any issues of concern. Should any issue require formal and operational level. A key component was the reporting, the chairman advises the company secretary integration of risk management at a divisional level accordingly. No such reports have been made this year. and the appointment of divisional risk coordinators.

We have also further aligned corporate assurance and SAFETY AND ENVIRONMENT internal risk management activities, enhancing outcomes COMMITTEE from the audit process. The Terms of Reference for the Safety and Environment Committee require that the committee comprise at least DELEGATIONS TO three non-executive directors and the managing director. MANAGEMENT Other directors have a standing invitation to attend all A comprehensive set of delegations has been issued meetings. Management representatives may be required to the managing director, including the power to sub- to attend meetings at the request of the committee. delegate, to allow management to conduct the business The committee is required to advise and report to the of the corporation. Notwithstanding these delegations, Board on policy, strategy, initiatives and achievements, specific rules have been put in place in critical areas in relation to: such as energy trading, retail sales and environmental determinations to ensure that the Board is directly • The safety of employees, the public, contractors and involved in decisions above predetermined thresholds. accredited service providers in any area of relevance to Country Energy’s activities, where reasonably under the control of Country Energy;

34 COUNTRY ENERGY ANNUAL REPORT 2003–2004 DIRECTORS’ ATTENDANCE AT MEETINGS

Board Meetings Committee Meetings Eligible Attended Eligible Attended B K Ward 12 12 4 4 C F Murray 12 12 3 3 M J Lee 12 11 3 3 T J Sullivan OAM 12 12 3 3 R A Sylvester 12 11 4 4 J H Wearne AM 12 12 4 4 G McLean 12 12 3 3

ETHICAL STANDARDS INSURANCE AGAINST RISK The Board has adopted policies addressing the Country Country Energy maintained its comprehensive insurance Energy Code of Conduct, conflicts of interest, gifts, coverage secured on a competitive basis from appropriate protected disclosures, privacy and other ethical insurance sources. Fire, General Liability, Directors’ and standards. These policies apply equally to the Board Officers’ liability insurance is procured under the NSW as to management, employees and contractors. Electricity Industry Group Scheme administered by a committee comprised of nominees from each of the CODE OF CONDUCT distributors involved. Other policies such as Industrial No changes were made this year to the Code of Conduct, Special Risk and Fleet Comprehensive are arranged which was introduced in December 2002. The code internally by our Risk and Insurance Department. applies to any of our directors, employees, consultants or contractors who represent or undertake duties for the LICENCE COMPLIANCE organisation. Licence compliance annual reports for our gas and electricity retail and distributor licences and our performance in safety were submitted to the Department FREEDOM OF INFORMATION of Energy, Utilities and Sustainability and the Independent During the year, 22 requests for information under Pricing and Regulatory Tribunal. the Freedom of Information Act 1989 were received. Thirteen of these were granted full access. The remainder As a contestable retailer in South Australia, Victoria and are either currently being clarified or were denied partly Queensland, compliance reports were also submitted or in full for reasons including the following: to the energy regulator in each of those states, in accordance with current guidelines. • contained information that has commercial value to competitors of Country Energy and would therefore affect our business affairs PROPERTY DISPOSAL Eleven items of property were disposed of this year, with • contained information that is exempt under the Act a combined value of $2,416,000. All were considered by reason of it being an internal working document surplus to our operations and the proceeds were used • contained information that was restricted under the to fund capital works projects. Access to documents terrorism exemptions contained in the Act relating to the disposal of land can be obtained under the • contained information that may affect the business Freedom of Information Act. affairs of our customers and would require us to consult with these customers to obtain their view CONTROLLED ENTITIES • would have had the effect of substantially and EMMLINK Pty Limited (ACN 085 123 468) unreasonably diverting resources away from their A wholly-owned subsidiary of Country Energy established use by Country Energy. in 1998 to undertake the Directlink project, a 50/50 joint venture between EMMLINK Pty Limited and Hydro Quebec FAIR AND UNBIASED International Australia. Directlink is a major transmission RECRUITMENT project between Mullumbimby and Terranora in north eastern New South Wales, forming an entrepreneurial A fair and unbiased recruitment and selection process is interstate interconnector within the national electricity at the forefront of our employment program. Positions market. are advertised internally through our regular recruitment bulletin to ensure employees have the opportunity to Country Energy Gas Pty Limited (formerly Great advance their careers. External recruitment is undertaken Southern Energy Gas Networks Pty Limited) (ACN if we are unable to attract suitably qualified internal 083 199 839) applicants or need to employ new skills. A wholly-owned subsidiary of Country Energy established in 1997 by Great Southern Energy to distribute and retail gas in Wagga Wagga and surrounding areas.

COUNTRY ENERGY ANNUAL REPORT 2003–2004 35 EastCoast Gas Pty Limited (ACN 071 314 184) • Group General Manager Corporate Operations, A wholly-owned non-operating subsidiary of Country Gary Humphreys, $242,000 Energy Gas Pty Limited. Deregistered on 20 March 2004. • Group General Manager Regulatory Affairs, NorthPower Energy Services Pty Limited Terri Benson, $236,000 (ACN 075 619 895) • General Manager Organisation Development, A wholly-owned non-operating subsidiary Stuart Liddell, $213,000 of Country Energy. • General Manager Customer Service, Paul Brazier, $208,000 EXECUTIVE REMUNERATION • Group General Manager External Relations, Bill Frewen, At the end of 2003-2004, Country Energy employed 45 $206,000 executive officers with total remuneration packages equal All executives are subject to formal annual performance to or exceeding the New South Wales Senior Executive assessments based on clear accountabilities contained in Service Level 1, including three females. written performance agreements. All of the executives listed above met or exceeded their performance criteria The following 11 executive officers received a total in 2003-2004. Country Energy’s executive remuneration remuneration package equal to or exceeding New South policy excludes bonus and ‘at risk’ payments. No bonus Wales Senior Executive Service Level 5 – payments were paid to any employee in relation to this • Managing Director, Craig Murray, $470,000 reporting year. • Group General Manager Service Delivery, Ken Stonestreet, $289,000 EQUAL OPPORTUNITIES • Group General Manager Finance and Business Country Energy is committed to creating an organisation Development, Justin De Lorenzo, $289,000 that reflects the cultural and gender diversity of our customer base. These principles are embedded in • Group General Manager Retail, John Adams, $278,000 our Equal Employment Opportunity Plan, which also • Group General Manager Networks, Terry Miller, incorporates people with a disability and our Ethnic $278,000 Affairs Priority Statement for 2004-2008. • Group General Manager Corporate Services and The following table shows the equal employment groups Company Secretary, Ron Craggs, $268,000 represented within our organisation at the end of this reporting period.

A. Trends in the Representation of EEO Groups % of Total Staff EEO Group Benchmark or Target 2001 2002 2003 2004 Women 50% 18% 18% 21% 21% Aboriginal people and Torres Strait Islanders 2% 1.8% 1.4% 2.7% 1.2% People whose first language was not English 20% 1% 1% 1% 0% People with a disability 12% 3% 4% 5% 5% People with a disability requiring 7%0.4%0.6%0.5%1.3% work-related adjustment

B. Trends in the Distribution of EEO Groups Distribution Index EEO Group Benchmark or Target 2001 2002 2003 2004 Women 100 75 84 80 73 Aboriginal people and Torres Strait Islanders 100 83 88 61 72 People whose first language was not English 100 n/a 94 100 n/a People with a disability 100 99 104 106 107 People with a disability requiring work- 100 n/a n/a n/a 104 related adjustment

Notes: 1. Staff numbers are as at 30 June. 2. Excludes casual staff 3. A Distribution Index of 100 indicates that the centre of the distribution of the EEO group across salary levels is equivalent to that of other staff. Values less than 100 mean that the EEO group tends to be more concentrated at lower salary levels than is the case for other staff. The more pronounced this tendency is, the lower the index will be. In some cases the index may be more than 100, indicating that the EEO group is less concentrated at lower salary levels. The Distribution Index is automatically calculated by the software provided by ODEOPE. 4. The Distribution Index is not calculated where EEO group or non-EEO group numbers are less than 20.

36 COUNTRY ENERGY ANNUAL REPORT 2003–2004 OVERSEAS VISITS The following overseas visits were undertaken during the year:

Purpose Employee Who Location Dates Meet with Craig Murray IBM, Peace Software and USA 4-11 July 2003 information Ken Stonestreet UMS service providers Patrick Cooper Peace Software New Zealand 27-29 July 2003

David Sherriff Peace Software and New Zealand 21-26 September Murray Eivers electricity retailers 2003

Craig Murray Peace Software New Zealand 29-30 April 2004 Ken Stonestreet 28-30 April 2004 Justin De Lorenzo 29-30 April 2004 Patrick Cooper 28-30 April 2004

Meet with insurers Ron Craggs Various insurers UK 26 July-2 August Switzerland 2003

Meet with electricity Craig Murray China Light and Power Hong Kong, India 17-23 August 2003 infrastructure Derek Lark and Singapore providers Craig Murray Tokyo Electric Power Japan 20-26 March 2004 Terry Miller Company and 10-17 May 2004

Study Rick Chilko Executive Masters of Business New Zealand 27 June-2 July 2004 Administration sponsored by Australian and New Zealand School of Government

CONSULTANTS LEGISLATIVE CHANGES The total amount spent on consultants was $986,669. Generally Country Energy, as a New South Wales State Those consultancies valued at more than $30,000 owned corporation, is subject to the same statutory and are shown in the following table. An additional 19 legal requirements as other businesses. consultancies in management services ($85,553), legal The following are the main legislative and other regulatory ($31,927), finance and tax ($28,000) and organisation changes made during the last financial year which impact review ($8,640) were valued at less than $30,000. Country Energy as an energy service corporation.

Commonwealth Description Supplier of services Amount • Renewable Energy (Electricity) Regulations 2001 (Cth) provided This Regulation was amended to reflect the renewable power percentages for 2003 and 2004. These are: for Management services 2003 - 0.88%; and for 2004 - 1.25%. PricewaterhouseCoopers Business advice $300,461 ACT KPMG Business advice $102,594 No relevant amendments. Langford & Rowe Sub-transmission $47,630 Consulting Surveyors consulting NSW Michael Hill Associate • Electricity Supply Act 1995 (NSW) Network study $31,306 Consulting In March 2004 the Electricity (Consumer Safety) Act 2004 was passed. This Act will amend the Electricity Supply Legal Act 1995 with the intention of promoting safety within Deacons Legal advice $350,560 the electricity industry. To this end an authorised network officer may enter any premises to inspect or disconnect any premises that the authorised officer is entitled to inspect or disconnect under any law.

Further a distribution network services provider may, for traffic safety reasons, be directed to remove an electricity structure that is on a main road.

COUNTRY ENERGY ANNUAL REPORT 2003–2004 37 This Act was also amended by the Statute Law The effect of this amendment in relation to gas (Miscellaneous Provisions) Act 2003 to ensure consistency contact sales agreements and gas telephone marketing of penalties. agreements is that the licensee does not have to obtain the customer’s written consent to vary the terms and • Electricity Supply (General) Regulation 2001 (NSW) conditions. The licensee can also decide when telephone This Regulation amended the Electricity Supply (General) marketing agreements can be cancelled. There is no need Amendment (Reduction of Greenhouse Gas Emissions) for a cooling off period unless the licensee determines Regulation 2003 which introduces an elective Greenhouse that such a period will be included in the terms and gas benchmarks process for customers that are likely to conditions. use 100 gigawatt hours or more of electricity at a single site. The Energy Legislation (Consumer Protection and Other Amendments) Act 2003 (Vic) amends this Act to extend Queensland the consumer protection safety net for gas and electricity • Gas Supply Act 2003 (Qld) customers until 31 December 2004 and to clarify the The Act came in to force on 1 July 2003. The main operation of VENCorp. purposes are to implement the franchising and licensing • Electricity Industry Act 2000 (Vic) principles of the national gas agreement, to promote This Act was amended by the Fair Trading (Amendment) efficient and economical fuel gas supply and protect Act 2003 (Vic) (operational from 9 December 2003). customers in reticulated fuel gas markets. The effect of this amendment is that licensees, such as These latter purposes are achieved via regulation of the Country Energy, can vary the tariffs, terms and conditions distribution and retail markets for reticulated fuel gas; in relation to contact sales agreements without the and regulation of the market operating arrangements in written consent of the customer. Further, licensees do the natural gas market, and by the provision of dispute not need to send written confirmation of telephone resolution procedures between customers and distributors marketing agreements. The licensee can also decide or retailers. when telephone marketing agreements can be cancelled. • Gas Regulation 1989 (Qld) Additionally, there is no need for a cooling off period Part 4 of this Regulation was amended by the Gas unless the licensee determines that such a period will be Supply Regulation 2003 (1 July 2003). This amendment included in the terms and conditions. approves a code of conduct regarding arrangements for The Energy Legislation (Consumer Protection and Other the operation or use of a distribution pipeline that is a Amendments) Act 2003 amends the Electricity Industry covered pipeline; or a covered transmission pipeline, to Act 2000 to ensure that the Essential Services Commission the extent its operation or use affects the operation or may: use of a distribution pipeline that is a covered pipeline. It also provides for the arrangements, imposes stated (i) impose a condition on a licence to require a terms on the arrangements and provides for the legal transmission company to provide access to its effect or enforcement of the terms. land for the purpose of constructing, operating and maintaining augmentations to the electricity • Electricity Amendment Regulation (Qld) (No 2 1) 2004 transmission system; and (to commence 1 July 2004) (ii) may direct a transmission company to enter into This Regulation amended the Electricity Regulation 1994 a lease in relation to the provision of access to its (Qld). Its main effects were the redefining of contestable land for the purpose of constructing, operating customers (from 0.2GWh to 0.1GWh), and the insertion and maintaining augmentations to the electricity of cooling-off provisions for negotiated customer transmission system; sale contracts. The Regulation amends the Electricity Regulation 1994 so that retail customers (as defined by It also clarifies the power of distribution companies, the Electricity Supply Act 1995 (NSW) are contestable transmission companies and generation companies to customers in Country Energy’s area. compulsorily acquire easements applies in respect of both overhead and underground power lines. • Electrical Safety Amendment Regulation (No 2) The Energy Legislation (Consumer Protection and Other 2003 (Qld) Amendments) Act 2003 (Vic) amends the Electricity This Regulation amended the Electrical Safety Regulation Industry Act 2000 to extend the consumer protection 2002 (Qld) by, among other things, eligibility requirements safety net for gas and electricity customers until 31 for various electrical tradespersons licences. December 2004 and to clarify the operation of VENCorp. Victoria • Gas Industry Act 2001 (Vic) This Act was amended by the Fair Trading (Amendment) Act 2003 (Vic) (operational from 9 December 2003).

38 COUNTRY ENERGY ANNUAL REPORT 2003–2004 The Energy Legislation (Regulatory Reform) Act 2004 Changes were also made to facilitate entry of Tasmania amended this Act (on 25 May 2004) to replace the into the National Electricity Market although they will existing Tariff Order with a more limited Order; and to have on affect unless and until Tasmania actually enters clarify when a generation company is liable to be rated the National Electricity Market in respect of land used for generation functions. Judicial Decisions • Electricity Industry (Residual Provisions) Act 1993 (Vic) We note there were no significant judicial decisions in the This Act was amended by the Energy Legislation 2003/2004 financial year affecting Country Energy. (Regulatory Reform) Act 2004 in relation to the regulation of charges for electricity purchased under the National Electricity Code, in that the Governor in Council can authorise the Minister to determine certain charges under the National Electricity Code.

• Electricity Safety Act 1998 (Vic) This Act was amended by the Energy Legislation (Regulatory Reform) Act 2004 in relation to safety management schemes. The amendment expands the circumstances under which the Office must recommend that the scheme should be accepted to include when the scheme is appropriate for the electrical work at the premises to which the scheme applies. In addition, the Act has been expanded so that the Office must be satisfied in relation to all schemes that the level of safety to be provided by the scheme is not less than the level of safety required by the Act and corresponding Regulations. The Office no longer has to notify the scheme operator in writing of its decision to approve a scheme.

This Act was further amended by the Road Management Act 2004 so that the a person who is required to conduct the works by specific requirements specified in or under any the Electricity Safety Act and the works are conducted in accordance with those requirements is not required to obtain written consent from VicRoads to carry out that requirement. The Road Management Act 2004 also updates the Act so that the definition of “road” is the same as the definition in the Road Management Act 2004 rather than the Transport Act 1983.

National Electricity Code A number of amendments were made to the National Electricity Code which either directly or indirectly affect Country Energy. These include: • Improvements to the prudential framework to refine the determination of the maximum credit limit of market participants and procedures when dealing with NEMMCO. • Transitional amendments that take into account full retail competition in Victoria (such as the requirement to demonstrate a minimum level of accuracy for a metering installation). • Provision of access to Ombudsman by NEMMCO of metering data of code participants where requested by the Ombudsman. • Stipulation of the way in which NEMMCO must determine market ancillary service. • Extension of the time for which NEMMCO can enter reserve contracts.

COUNTRY ENERGY ANNUAL REPORT 2003–2004 39 FINANCIAL STATEMENTS CONTENTS Independent Audit Report 41 Note 15. Payables 60 Statement by Members of the Board 42 Note 16. Interest Bearing Liabilities 60 Statement of Financial Performance 43 Note 17. Provisions 61 Statement of Financial Position 44 Note 18. Other Liabilities 61 Statement of Cash Flows 45 Note 19. Components of Equity 62 Notes to the Financial Statements 46 Note 20. Finance Facilities 62 Note 1. Significant Accounting Policies 46 Note 21. Notes to the Statement of Cash Flows a) Reporting Entity 46 for the Year Ended June 2004 63 b) Financial Reporting Framework 46 Note 22. Financial Instruments – Consolidated 64 c) Principles of Consolidation 46 Note 23. Commitments 67 d) Change in Accounting Policies 46 Note 24. Auditors’ Remuneration 68 e) Impacts of Adopting Australian Note 25. Directors’ Remuneration 68 Equivalents to International Note 26. Related Parties 69 Financial Reporting Standards 46 Note 27. Controlled Entities 69 f) Recognition of Revenue 49 Note 28. Statement of Operations by Segment 69 g) Valuation of Current Assets 49 Note 29. Superannuation Plans 71 h) Valuation of Property, Plant and Equipment 49 Note 30. Joint Venture 72 i) Valuation of Other Non-Current Assets 50 Note 31. Contingent Liabilities 73 j) Liabilities 51 Note 32. Events Subsequent to Balance Date 73 k) Income Tax 51 l) Goods and Services Tax 52 m) Electricity Purchases 52 n) Construction Contracts 52 o) Joint Venture 52 p) Foreign Currency 52 q) Rounding of Amounts 52 r) Exemptions 53 Financial Reporting Exemptions 53 Annual Reporting Exemptions 53 Note 2. Components of Revenue and Expenses 54 Note 3. Income Tax Expense 55 Note 4. Tax Assets 55 Note 5. Tax Liabilities 55 Note 6. Dividends 56 Note 7. Cash Assets 56 Note 8. Receivables 56 Note 9. Inventories 56 Note 10. Investments in Subsidiary Corporations 57 Note 11. Other Assets 57 Note 12. Property, Plant and Equipment 58 Note 13. Intangible Assets 59 Note 14. Deposits 59

40 COUNTRY ENERGY ANNUAL REPORT 2003–2004 INDEPENDENT AUDIT REPORT

COUNTRY ENERGY ANNUAL REPORT 2003–2004 41 STATEMENT BY MEMBERS OF THE BOARD

Pursuant to Section 41 of the Public Finance and Audit Act 1983 we state that:

1. The accompanying financial statements are a general purpose financial report which have been prepared in accordance with the Public Finance and Audit Act 1983, Public Finance and Audit Regulation 2000, the State Owned Corporation Act 1989, applicable Accounting Standards and other mandatory professional reporting requirements.

2. The accompanying financial statements exhibit a true and fair view of the financial position of Country Energy as at 30 June 2004 and of the profit and cash flows of the corporation for the year ended 30 June 2004.

3. At the date of this statement, there are reasonable grounds to believe that Country Energy will be able to pay its debts as and when they become due and payable.

4. We are not aware of any circumstances which would render any particulars included in these statements to be misleading or inaccurate.

Signed in accordance with a resolution of Directors.

Barbara Ward CHAIRMAN

Craig Murray MANAGING DIRECTOR

14 October 2004

42 COUNTRY ENERGY ANNUAL REPORT 2003–2004 Statement of Financial Performance for the year ended 30 June 2004

Consolidated Corporation NOTE 2004 2003 2004 2003 $’000 $’000 $’000 $’000

Revenue from Ordinary Activities 2 1,643,837 1,503,965 1,638,006 1,498,943

Expenses from Ordinary Activities excluding Borrowing Costs 2 (1,381,413) (1,317,042) (1,379,914) (1,316,510) and Employer Superannuation Contributions

Borrowing Costs (111,295) (104,221) (111,295) (104,221)

Employer Superannuation Contributions (refer note 29) (10,419) (27,263) (10,419) (27,263) Profit from Ordinary Activities before related Income Tax Expense 140,710 55,439 136,378 50,949

Income Tax Expense relating to Ordinary Activities 3 (62,371) (18,550) (61,105) (14,419)

Profit from Ordinary Activities after related Income Tax Expense 78,339 36,889 75,273 36,530

Net Profit Result Attributable to Members 78,339 36,889 75,273 36,530 of the Parent Entity

Total changes in equity other than those resulting from 19 78,339 36,889 75,273 36,530 transactions with owners as owners

The accompanying notes form part of this Statement of Financial Performance.

COUNTRY ENERGY ANNUAL REPORT 2003–2004 43 Statement of Financial Position as at 30 June 2004

Consolidated Corporation Note 2004 2003 2004 2003 $’000 $’000 $’000 $’000

Current Assets Cash Assets 7 11,526 37,768 11,516 29,545 Receivables 8 219,093 209,909 229,130 219,950 Estimated Revenue from Unread Meters 1(f) 137,265 98,208 137,265 98,208 Inventories 9 19,534 18,941 19,534 18,941 Tax Assets 4 - 499 - - Other Assets 11 7,073 4,147 7,073 4,147 Total Current Assets 394,491 369,472 404,518 370,791

Non-Current Assets Receivables 8 25,382 19,870 25,382 19,870 Investments in Subsidiary Corporations 10 - - 36,871 37,871 Property, Plant and Equipment 12 2,359,749 2,167,741 2,235,023 2,046,751 Intangible Assets 13 25,955 28,937 9,543 10,641 Tax Assets 4 51,439 50,991 51,439 42,253 Other Assets 11 8,692 1,550 122,640 123,038 Total Non-Current Assets 2,471,217 2,269,089 2,480,898 2,280,424

TOTAL ASSETS 2,865,708 2,638,561 2,885,416 2,651,215

Current Liabilities Payables 15 237,776 210,446 244,871 210,977 Deposits 14 15,542 14,126 15,542 14,126 Interest Bearing Liabilities 16 442,657 420,760 442,657 420,760 Tax Liabilities 5 46,339 - 46,339 - Provisions 17 77,387 69,545 76,887 69,045 Other 18 3,572 3,366 1,259 697 Total Current Liabilities 823,273 718,243 827,555 715,605

Non-Current Liabilities Interest Bearing Liabilities 16 1,081,785 1,036,285 1,081,785 1,036,285 Tax Liabilities 5 136,659 114,572 136,659 110,372 Provisions 17 96,761 89,951 96,761 89,951 Other 18 3,475 4,123 3,475 5,123 Total Non-Current Liabilities 1,318,680 1,244,931 1,318,680 1,241,731

TOTAL LIABILITIES 2,141,953 1,963,174 2,146,235 1,957,336

NET ASSETS 723,755 675,387 739,181 693,879

Equity Contributed Equity 1(a), 19 95,563 95,563 95,563 95,563 Reserves 19 347,205 347,205 347,205 347,205 Retained Profits 19 280,987 232,619 296,413 251,111 Total Parent Entity Interest 723,755 675,387 739,181 693,879

TOTAL EQUITY 723,755 675,387 739,181 693,879

The accompanying notes form part of this Statement of Financial Position.

44 COUNTRY ENERGY ANNUAL REPORT 2003–2004 Statement of Cash Flows for the year ended 30 June 2004

Consolidated Corporation 2004 2003 2004 2003 Note $’000 $’000 $’000 $’000 Inflows / (Outflows) Inflows / (Outflows)

CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers 1,714,535 1,579,596 1,711,817 1,569,118 Payments to suppliers & employees (1,365,778) (1,306,755) (1,360,194) (1,305,532) Interest received 1,927 5,556 1,730 5,263 Interest and other costs of finance paid (106,545) (97,677) (106,545) (97,677) Income tax refund/(paid) 6,109 6,798 6,109 6,798 NET OPERATING CASH FLOWS 21 250,248 187,518 252,917 177,970

CASH FLOWS FROM INVESTING ACTIVITIES Payments for property, plant and equipment (324,808) (297,518) (320,264) (292,305) Proceeds from sale of property, plant & equipment 9,553 8,158 9,553 8,158 Net sales of investments - - 1,000 - NET INVESTING CASH FLOWS (315,255) (289,360) (309,711) (284,147)

CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from borrowings 62,000 272,090 62,000 272,090 Repayment of borrowings (4,455) (152,401) (4,455) (152,401) Net community service obligations received/(paid) 1,613 (1,682) 1,613 (1,682) Dividends paid 6 (29,764) (12,000) (29,764) (12,000) NET FINANCING CASH FLOWS 29,394 106,007 29,394 106,007

NET INCREASE/(DECREASE) IN CASH HELD (35,613) 4,165 (27,400) (170) Cash at the beginning of the financial year 37,768 33,603 29,545 29,715 Cash at the end of the financial year 1(g), 21 2,155 37,768 2,145 29,545

The accompanying notes form part of this Statement of Cash Flows.

COUNTRY ENERGY ANNUAL REPORT 2003–2004 45 Notes to the Financial Statements for the year ended 30 June 2004

Note 1. SIGNIFICANT ACCOUNTING POLICIES

The significant policies which have been adopted in the preparation of the financial statements are:

(a) Reporting Entity Country Energy was formed on 1 July 2001 by the merger of three NSW electricity distributors. These distributors traded as Advance Energy, Great Southern Energy and NorthPower.

Country Energy is incorporated under the State Owned Corporations Act 1989. Country Energy’s capital comprises two (2) fully paid $1.00 ordinary shares issued to the Treasurer and another Minister, currently the Special Minister of State, and Assistant Treasurer. The $2.00 share capital has been included in the amount of contributed equity disclosed in the Statement of Financial Position (refer note 19).

(b) Financial Reporting Framework The accompanying statements are a general purpose financial report which has been prepared in accordance with the requirements of the Public Finance and Audit Act 1983, the Public Finance and Audit Regulation 2000 and the State Owned Corporations Act 1989. The financial statements have been prepared on an accrual accounting, going concern basis in accordance with these Acts and Regulation, and are in conformity with Australian Accounting Standards, other authoritative pronouncements of the Australian Accounting Standards Board and Urgent Issues Group Consensus Views.

The financial statements have been prepared in accordance with the historical cost convention and do not take account of changes in the general purchasing power of the dollar except where stated.

Comparatives have been reclassified where necessary to enhance comparability in respect of changes in the current year. Where prior year information was not disclosed, or where it is not practical to calculate the information, comparatives have been omitted. Where this has occurred, references have been made accordingly throughout the financial statements.

Figures have been reclassified this year to incorporate changes required by new or revised accounting standards.

(c) Principles of Consolidation The consolidated financial statements of the economic entity include the financial statements of the Corporation, being the parent entity, and its controlled entities. Details of holdings in controlled entities appear in note 27.

The balances and effects of transactions with the controlled entities included in the financial statements have been eliminated.

The controlled entities are EMMLINK Pty Limited, NorthPower Energy Services Pty Limited and Country Energy Gas Pty Limited. In the prior year controlled entities included EastCoast Gas Pty Ltd. This entity was deregistered during the year.

NorthPower Energy Services Pty Limited did not operate during the year.

(d) Change in Accounting Policies The accounting policies are consistent with those applied in the previous year.

The following new Australian Accounting Standard has been applied from 1 July 2003:

• AASB 1047: Disclosing the Impacts of Adopting Australian Equivalents to International Financial Reporting Standards. (e) Impacts of Adopting Australian Equivalents to International Financial Reporting Standards Country Energy will apply the Australian Equivalents to International Financial Reporting Standards (AIFRS) from the reporting period beginning 1 July 2005.

(i) Managing the transition The transition to the new standards will be managed by allocating internal resources and engaging consultants to analyse the pending standards and Urgent Issues Group Abstracts to identify key areas regarding policies, procedures, systems and financial impacts affected by the transition.

As a result of this exercise, the following steps have been taken to manage the transition to the new standards:

• The Audit and Risk Committee is overseeing the transition. The Group General Manager, Finance and Business Development is responsible for the project and reports regularly to the Committee on progress against the plan.

46 COUNTRY ENERGY ANNUAL REPORT 2003–2004 Notes to the Financial Statements for the year ended 30 June 2004

• Consultants have been appointed. • A preliminary analysis has been carried out to identify the differences between GAAP and AIFRS. • A project plan has been prepared to resolve these differences and assist with the transition. • The plan identifies the steps required to design and implement the necessary processes, procedures and policies to achieve transition. The plan has been structured into three areas of significance which are listed below, together with the plan’s steps.

1: Financial Instrument Standards AASB 132 and AASB 139 AASB 132: Financial Instruments: Disclosure and Presentation AASB 139: Financial Instruments: Recognition and Measurement Standards – Review accounting treatments of major contracts under AASB 139 – Undertake a quantitative analysis of portfolio management practices – Develop a systems strategy to support AASB 139 adoption – Implementation of a hedge effectiveness framework – Review debt management arrangements – Review foreign exchange management arrangements – Evaluate hedge instrument valuation methodologies – Review and draft amendments to existing policies

2: Non-Financial Instruments Standards – Review the basis of measuring capitalised costs – Confirm fair value methodologies with NSW Treasury – Redesign asset register if necessary – Identify Cash Generating Units (CGUs) – Assess investment properties – Construct taxation calculation models – Assess intangible assets – Assess methodologies for determining revenue – Review joint ventures – Review provisions and contingent assets – Review employee benefits and superannuation – Review leases

3: General Matters – Assess options available under AASB 1: First-time Adoption of Australian Equivalents to International Financial Reporting Standards – Determine the impact of AIFRS on Key Performance Indicators (KPIs) – Determine the impact on all other reporting requirements – Review all other accounting policies – Define and document the processes and reports within the financial reporting systems, this includes dual reporting within the comparative year – Produce initial AIFRS reports which includes restating the 1 July 2004 opening balance sheet, the 2005 actuals and the statements required under AASB 1047: Disclosing the Impacts of Adopting Australian Equivalents to International Financial Reporting Standards – Design appropriate training

NSW Treasury is assisting Country Energy to manage the transition by developing policies, including mandates of options; presenting training seminars; providing a website with up-to-date information to advise of any new developments; and establishing an IAS Agency Reference Panel to facilitate a collaborative approach to manage the change.

(ii) Key differences in accounting policies expected to arise from adopting AIFRS Country Energy has identified a number of significant differences in accounting policies that will arise from adopting AIFRS. Some differences are because AIFRS requirements are different from existing AASB requirements. Other differences could arise from options

COUNTRY ENERGY ANNUAL REPORT 2003–2004 47 Notes to the Financial Statements for the year ended 30 June 2004

within AIFRS. To ensure consistency at whole of government level, NSW Treasury have advised the options that it is likely to mandate, and will confirm these during 2004-05. This disclosure reflects these likely mandates.

Country Energy’s accounting policies may also be affected by a proposed standard designed to harmonise accounting standards with Government Finance Statistics (GFS). This standard is likely to change the impact of AIFRS and significantly affect the presentation of the income statement. However the impact is uncertain, because it depends on when this standard is finalised and whether it can be adopted in 2005-06.

Based on current information, the following key differences in accounting policies are expected to arise from adopting AIFRS:

• AASB 1 requires retrospective application of the new AIFRS from 1 July 2004, with limited exemptions. Similarly, AASB 108: Accounting Policies, Changes in Accounting Estimates and Errors requires voluntary changes in accounting policy and correction of errors to be accounted for retrospectively by restating comparatives and adjusting the opening balances of accumulated funds. This differs from current Australian requirements, because such changes must be recognised in the current period through profit or loss, unless a new standard mandates otherwise. • AASB 110: Events after the Balance Sheet Date states that only dividends “declared” or appropriately “authorised” before the reporting date can be recognised. This is more restrictive than the current approach which is based on “valid expectations”. However this change is not expected to impact on dividend recognition as the signing of the Statement of Corporate Intent before the reporting date to which it relates, “authorises” the dividend and any change in the amount of the dividend after the reporting date constitutes an “adjusting event after the reporting date”. However the amount of the dividend may be affected by other AIFRS, such as AASB 139 and AASB 119: Employee Benefits (refer below) as these standards may impact on retained earnings (on first adoption) and the amount and volatility of profit/loss. • AASB 112: Income Taxes requires a balance sheet approach where the entity must identify differences between the accounting and tax value of the assets and liabilities. The previous approach was to account for tax by adjusting accounting profit for temporary and permanent differences to derive taxable income. The AASB 112 approach may alter the quantum of tax assets and liabilities recognised. In addition the income tax expense and deferred tax assets and liabilities may be affected by other AIFRS to the extent that they impact on the balance sheet and profit and loss. • AASB 116: Property, Plant and Equipment requires major inspection costs to be capitalised. This will require the fair value and depreciation of the related asset to be re-allocated. Asset revaluation increments and decrements must be accounted for on an individual asset basis, rather than on a class basis. This may decrease accumulated funds. • AASB 119 requires the defined benefit obligation to be discounted using the government bond rate as at each reporting date rather than the long-term expected rate of return on plan assets. This may increase the future volatility of superannuation expense. • AASB 123: Borrowing Costs provides the option to expense or capitalise borrowing costs. NSW Treasury is likely to mandate the expensing of borrowing costs to harmonise with GFS. Previously, borrowing costs related to qualifying assets were capitalised. • AASB 136: Impairment of Assets requires an entity to assess at each reporting date whether there is any indication that an asset (or CGU) is impaired and if such indication exists, the entity must estimate the recoverable amount. However, the effect of this Standard should be minimal because all substantive principles in AASB 136 are already incorporated in Treasury’s policy Valuation of Physical Non-Current Assets at Fair Value. • AASB 138: Intangibles requires that all research costs must be expensed and restricts capitalisation of development costs. Some previously recognised internally generated intangible assets may need to be derecognised. • AASB 139 results in the recognition of financial instruments that were previously off balance sheet, including derivatives. The standard adopts a mixed measurement model and requires financial instruments held for trading and available for sale to be measured at fair value and valuation changes to be recognised in profit or loss or equity, respectively. Previously they were recognised at cost. This may increase the volatility of the operating result and balance sheet. The standard also includes stricter rules for the adoption of hedge accounting, and where these are not satisfied, movements in fair value will impact the income statement. To achieve full harmonisation with GFS, all financial instruments will need to be designated at fair value through profit or loss. However, at this stage it is unclear whether this option will be available under the standard, and if available, whether Treasury will mandate the option.

48 COUNTRY ENERGY ANNUAL REPORT 2003–2004 Notes to the Financial Statements for the year ended 30 June 2004

• AASB 140: Investment Property requires investment property to be measured at cost or fair value. NSW Treasury is likely to mandate the adoption of fair value. In contrast to the current treatment of an asset classified within property, plant and equipment, investment property recognised at fair value is not depreciated and changes in fair value are recognised in the income statement. (f) Recognition of Revenue Revenue relating to Country Energy’s core operations is classified as revenue from operating activities for the purposes of note 2. All other revenue is classified as revenue outside operating activities for the purposes of note 2.

(i) Sales revenue Sales revenue comprises revenue earned (net of returns, discounts and allowances) from the provision of products or services and is recognised when the goods are provided or when the fee in respect of services provided is receivable.

(ii) Revenue from unread meters Revenue from unread meters is calculated at balance date for those customers who at balance date, did not have their meters read and invoiced. The calculation is based on their estimated consumption.

(iii) Interest income Interest income is recognised on an accrual basis using the interest applicable to the financial asset.

(iv) Asset sales The gross proceeds of sale of assets is recognised as revenue and is brought to account when control of the asset passes to the buyer.

(v) Capital contributions Capital contributions are monies paid by customers, or prospective customers, seeking an augmentation of the electricity and gas distribution systems in circumstances where, in the ordinary course of events, such augmentation would not be undertaken by Country Energy.

Capital contributions are recognised as revenue in proportion to the stage of completion of the related augmentation works.

Assets that are contributed to Country Energy by customers, are treated as capital contributions and are valued at fair value (refer note 1(h)).

(g) Valuation of Current Assets (i) Cash assets For the purposes of the Statement of Financial Position, cash assets include cash on hand and investments at call (refer note 7).

For the purposes of the Statement of Cash Flows, cash includes cash assets net of bank overdraft (refer note 21).

(ii) Receivables Trade debtors are carried at amounts due. Collectability of debt is assessed at balance date. A general provision is determined after having considered the ageing of the debt and the credit risk of the debtors (refer note 8).

(iii) Investments Investments are recorded at cost. Any change in market value is recognised as revenue.

(iv) Inventories Inventories have been valued at the lower of cost and net realisable value. Cost is determined using the average purchase price of each item and comprises the cost of purchase including the cost of bringing the inventories to their appropriate location.

(h) Valuation of Property, Plant and Equipment In 2000, NorthPower, Advance Energy and Great Southern Energy elected to apply the transitional provisions available to public sector entities under AAS 38: Revaluation of Non Current Assets. These elections were transferred to Country Energy upon its formation. The Corporation will continue to value its non-current assets in the manner disclosed in this note. A revaluation in accordance with the standard will take place no later than 30 June 2005.

(i) System assets The network system assets of the three former corporations were valued in 1999 by Gutteridge Haskins and Davey Pty Ltd, Worley International Ltd and Arthur Andersen using an “Optimised Depreciated Replacement Cost” (ODRC) methodology.

COUNTRY ENERGY ANNUAL REPORT 2003–2004 49 Notes to the Financial Statements for the year ended 30 June 2004

The carrying values of the three corporations as at 30 June 2001 consisted of the values adopted as a result of the 1999 ODRC valuations in the case of NorthPower, and the values adopted by the directors in the case of Advance Energy and Great Southern Energy, plus additions at cost, less disposals and depreciation expense. These values were aggregated on1 July 2001 to form the carrying values for Country Energy.

(ii) Land and buildings The land and building asset values of NorthPower were assessed in conjunction with KPMG Corporate Finance (Aust) Pty Ltd in June 2001. The results supported the carrying values of the assets.

The land and building assets of Advance Energy were valued for the purposes of corporatisation in 1996. These values were reviewed in February 1999 to ensure they approximated market value at that time. The valuations since that date were assessed to ensure that the carrying values did not materially differ from the fair value.

The land and building assets of Great Southern Energy were independently valued by McCann and Associates on 30 June 2001. The carrying values were adjusted to reflect the results of the valuations.

The 30 June 2001 land and building assets carrying values of the three corporations were aggregated on 1 July 2001 to form the carrying values for Country Energy.

(iii) The assets of EMMLINK Pty Limited The 30 June 2001 carrying values of the subsidiary’s system assets were independently valued by KPMG Corporate Finance (Aust) Pty Ltd. The valuations were adopted by the Directors at 30 June 2001 and became part of the Country Energy Consolidated Group at fair value on 1 July 2001.

(iv) The assets of Country Energy Gas Pty Limited The subsidiary’s gas system assets were valued during the year by Deloitte Corporate Finance Pty Ltd. The carrying values at balance date are supported by the independent valuation.

(v) Asset acquisition The value of assets acquired during the year includes the cost of acquisition, the cost of materials, labour and an appropriate proportion of overheads.

Assets that are contributed by customers are recorded at fair value (refer note 1(f)(v)).

(vi) Fair Value Assets are recorded at fair value at balance date. These assets are cash generating assets. They are of a specialised nature and there is no evidence available to support a market price. The fair value of the assets has been determined by the present value of future net cash inflows.

(vii) Depreciation The carrying value of property, plant and equipment is net of depreciation where applicable.

Depreciation is calculated for all items of property, plant and equipment, except freehold land, based on the estimated useful remaining life of the asset. The straight line or reducing balance methods are used.

Depreciation expense is recognised in the Statement of Financial Performance. Accumulated depreciation is written back against the asset when the asset is revalued.

The estimated remaining lives to the entity for each class of asset are as follows:

Buildings 40 years Leasehold improvements Term of lease System assets 5 – 60 years Other assets 1 – 10 years (i) Valuation of Other Non-Current Assets (i) Investments Shares held by the corporation in its subsidiaries are eliminated in the consolidated financial statements.

50 COUNTRY ENERGY ANNUAL REPORT 2003–2004 Notes to the Financial Statements for the year ended 30 June 2004

Cash investments are recorded at fair value. Changes to the market value of cash investments are recorded in the Statement of Financial Performance or the asset revaluation reserve in accordance with Australian Accounting Standard AASB 1041: Revaluation of Non-Current Assets.

(ii) Intangible assets The largest components of intangible assets are Natural Gas Business Licences. These were acquired when the former Great Southern Energy purchased the Natural Gas Business from the Council of the City of Wagga Wagga.

The difference between the cost of the Natural Gas Business and the value of the total assets is the value of the intangible asset, being Distribution and Retail licences (refer note 13).

These licences entitle Country Energy to distribute and retail Natural Gas within the Wagga Wagga region, as well as to other contestable markets. The licences have been brought to account having regard to the expected net cash flows derived from holding the licences, and are based on an independent valuation, at the time of acquisition, as part of the allocation of the purchase price of the assets acquired. During the year amortisation was provided for the first time. Amortisation is over a ten year period on a straight line basis. Nothing has occurred to suggest the terms and conditions of the issuance of the licences have not been complied with to support the carrying value of the asset. The values of these licences are reviewed annually.

(iii) Leased assets Country Energy has not entered into any finance leases. Operating leases are not capitalised and rental payments are charged against operating profit in the period in which they are incurred (refer note 23).

(j) Liabilities (i) Payables Payables are recognised when the corporation is obliged to make a future payment for the purchase of goods or services. Payables are recorded at fair value.

(ii) Interest bearing liabilities Interest bearing liabilities are disclosed at their capital value.

(iii) Discount and premiums on loans Discounts and premiums on loans are netted against the appropriate interest bearing liabilities.

(iv) Loans to subsidiaries Country Energy has lent $57.5 million to EMMLINK Pty Limited and $56.5 million to Country Energy Gas Pty Limited. Due to a resolution taken by the Board of Country Energy, these loans will not place in jeopardy the solvency of the subsidiaries (refer note 11).

(v) Employee benefits The provision for employee benefits to wages, annual leave, sick leave and long service leave represents the amount which Country Energy has a present obligation to pay resulting from employees’ services provided up to balance date.

The amounts provided have been apportioned between current and non-current provisions, the current provision being that portion which is expected to be paid within the ensuing twelve months (refer note 17).

In calculating wages and annual leave, nominal amounts have been used based on current wages and salaries, including related on costs.

The amounts recognised for sick leave and long service leave are calculated in accordance with Australian Accounting Standard AASB 1028: Employee Benefits. Sick leave and long service leave were calculated using methodologies supplied by the NSW Government Actuary. The non-current portion of the liabilities have been discounted using rates attaching to Commonwealth government securities at balance date.

(k) Income Tax The economic entity operates within the National Tax Equivalent Regime (NTER) administered by the Australian Taxation Office on behalf of the NSW Government.

Tax effect accounting principles are applied to the financial statements. Timing differences which arise from items of income and expense, being brought to account in different periods for income tax and accounting purposes are carried forward in the Statement of Financial Position as a future income tax benefit or a provision for deferred income tax. COUNTRY ENERGY ANNUAL REPORT 2003–2004 51 Notes to the Financial Statements for the year ended 30 June 2004

Future income tax benefits relating to tax losses are only brought to account when their realisation is virtually certain. All other future benefits are brought to account only when realisation of the asset is beyond reasonable doubt.

The Country Energy group has elected to consolidate for NTER purposes and as a result the balances of the subsidiaries’ tax assets and tax liabilities are transferred to the parent entity.

(l) Goods and Services Tax Revenue, expenses and assets (other than receivables) are recognised net of the amount of goods and services tax (GST), except where the amount of GST incurred is not recoverable from the Australian Taxation Office (ATO). In these circumstances the GST is recognised as part of the cost of acquisition of the asset or as part of an item of expense.

Receivables and payables are stated with the amount of GST included.

The net amount of GST recoverable from, or payable to, the ATO is included as a current asset or current liability in the Statement of Financial Position.

Cash flows are included in the Statement of Cash Flows on a gross basis. The GST component of cash flows arising from investing and financing activities which are recoverable from, or payable to, the ATO are classified as operating cash flows.

(m) Electricity Purchases Country Energy purchases electricity in the National Electricity Market for resale to its customers. Changes in the spot market may generate adverse financial effects. In order to minimise the risk, electricity trading positions are hedged. The gains and losses arising from these hedging transactions are brought to account on settlement and are included as part of electricity purchases (refer note 22(d)(i)).

(n) Construction Contracts Profit is recognised on fixed price construction contracts in proportion to the progress on each contract when all of the following conditions are satisfied:

• total contract revenues to be received and the costs to complete the contract can be reliably estimated; • the stage of contract completion can be reliably determined; and • the costs attributable to the contract date can be clearly identified and can be compared with prior estimates.

Profit is recognised on cost plus construction contracts in proportion to the progress on each contract when all of the following conditions are satisfied:

• the costs attributable to the contract to date can be clearly identified; • costs to complete other than those that will be specifically reimbursable under the contract can be reliably estimated; and, where relevant, • the stage of contract completion can be reliably determined.

Any material losses on construction contracts are brought to account as soon as they are foreseeable.

(o) Joint Venture Interest in joint ventures have been reported in the financial statements by including the economic entity’s share of assets employed, and share of liabilities incurred, in their respective classification categories (refer note 30).

(p) Foreign Currency Foreign currency transactions are converted to Australian currency at the rates of exchange applicable at the dates of the transactions.

The treatment of foreign currencies that are hedged together with outstanding foreign currency balances, are set out in note 22(d)(ii).

(q) Rounding of Amounts Amounts in the financial statements have been rounded to the nearest thousand dollars unless specifically stated otherwise.

52 COUNTRY ENERGY ANNUAL REPORT 2003–2004 Notes to the Financial Statements for the year ended 30 June 2004

(r) Exemptions Exemptions have been granted by the Treasurer under Section 41BA of the Public Finance and Audit Act and Section 15 of the Regulation, so that the financial reporting requirements which apply are broadly consistent with the Corporations Act reporting requirements, given that the entity is competing in the national electricity market.

The following specific disclosures are not required to be made as a result of the exemptions:

Financial Reporting Exemptions Public Finance and Audit Act – Format of financial statements

• Section 41B(c) PF&AA – Financial Statements Schedule 1, Part 1: PF&A Reg – Notes – Income and expenditure • Item 2 - Amounts set aside for renewal or replacement of fixed assets. • Item 4 - Amounts set aside to any provision for known commitments. • Item 6 - Amount appropriated for repayment of loans / advances / debentures / deposits. • Item 13 - Material items of income and expenditure on a program or activity basis. Schedule 1, Part 3: PF&A Reg – Notes – Additional information • Item 13 - Excess of non-current asset value over replacement cost.

Annual Reporting Exemptions Budgets s.7(1)(a)(iii) ARSBA cl 6 ARSBR Report of Operations s.7(1)(a)(iv) ARSBA Management & Activities Schedule 1 ARSBR Research & Development Schedule 1 ARSBR Human Resources Schedule 1 ARSBR Consultants Schedule 1 ARSBR Land Disposal Schedule 1 ARSBR Consumer Response chedule 1 ARSBR Payment of Accounts Schedule 1 ARSBR Time for Payment of Accounts Schedule 1 ARSBR Report on Risk Management & Insurance Activities Schedule 1 ARSBR Disclosure of Controlled Entities Schedule 1 ARSBR Investment Management Performance cl. 12 ARSBR Liability Management Performance cl. 12 ARSBR Financial Statements of Controlled Entities s.7(1)(a)(ia) ARSBA

# Reference ARSBA – Annual Reports (Statutory Bodies) Act 1984 PF&AA – Public Finance & Audit Act 1983 ARSBR – Annual Reports (Statutory Bodies) Regulation 2000 PF&A Reg – Public Finance and Audit Regulation 2000

COUNTRY ENERGY ANNUAL REPORT 2003–2004 53 Notes to the Financial Statements for the year ended 30 June 2004

Note 2. COMPONENTS OF REVENUE AND EXPENSES

Consolidated Corporation 2004 2003 2004 2003 $’000 $’000 $’000 $’000

Revenue from Operating Activities Sale and delivery of energy 1,518,189 1,393,473 1,512,555 1,388,793 Capital contributions (refer note 1(f)) 68,932 50,989 68,932 50,962 Rental income (refer note 23(e)) 1,174 1,020 1,174 1,020 Other revenue from ordinary activities 43,854 50,164 43,854 50,145 1,632,149 1,495,646 1,626,515 1,490,920 Revenue from Outside the Operating Activities Investment revenue (refer note 1(f)) 1,927 1,743 1,730 1,447 Proceeds on sale of property, plant & equipment 9,761 6,576 9,761 6,576 11,688 8,319 11,491 8,023 Total Revenues from Ordinary Activities 1,643,837 1,503,965 1,638,006 1,498,943

Expenses Relating to Ordinary Activities Cost of sale and delivery of energy 1,334,151 1,266,133 1,332,652 1,265,601 Cost of other revenue from ordinary activities 47,262 50,909 47,262 50,909 Total Expenses Relating to Ordinary Operations 1,381,413 1,317,042 1,379,914 1,316,510

Expense Items Included in Total Expenses relating to Ordinary Operations Expenses from Operating Activities Amounts charged against provisions for employee benefits 39,374 21,082 39,374 21,082 Depreciation of property, plant and equipment 127,888 117,596 123,606 113,415 Amortisation of intangible assets 2,981 425 1,097 115 Consultants expenses 810 653 810 653 (Amounts capitalised $0.434 million) Bad debts expense 5,909 3,300 5,909 3,300 Minimum lease payments on operating leases (refer notes 1(i) and 23) 9,779 9,409 9,779 9,409 Expenses from Outside Operating Activities Carrying value of property, plant & equipment sold 8,387 6,482 8,387 6,482 Write down of property, plant and equipment in - 95 - - wholly owned subsidiary Write down of intangible assets in wholly-owned subsidiary - 1,256 - -

Other Business Activities

Country Energy carries out a number of commercial business activities which are incidental to, associated with, or are related to the supply and delivery of energy. Individually these activities are not of significant size, nature or incidence. The aggregate of revenue from these activities of $43.854 million ($47.159 million in 2003) is included in other revenue from ordinary activities. The aggregate of expenses from these activities of $40.837 million ($50.909 million in 2003) is included in the cost of other revenue from ordinary activities.

54 COUNTRY ENERGY ANNUAL REPORT 2003–2004 Notes to the Financial Statements for the year ended 30 June 2004

Note 3. INCOME TAX EXPENSE

Consolidated Corporation 2004 2003 2004 2003 $’000 $’000 $’000 $’000

Operating profit before tax expense 140,710 55,439 136,378 50,949 Prima facie tax thereon at 30% 42,212 16,633 40,913 15,285 Tax effect of permanent differences Entertainment expense 100 95 100 95 Legal expenses 69 34 69 33 Employer superannuation overfunded contributions (1,921) 3,675 (1,921) 3,675 Net realised gain from investment 120 - 120 - Book depreciation on capital contributed assets 2,425 2,396 2,425 2,396 Book depreciation on revalued assets 1,832 1,831 1,832 1,831 Non-deductible asset revaluations - 416 - - Non-deductible goodwill amortisation 168 125 28 32 Non-deductible intangibles amortisation 755 - 329 - Non-assessable/deductible (gains)/losses on loans - - - 37 Non-deductible provision - 150 - - Sundry items - 1 - -

Other Adjustments Remove tax effect on prior year adjustments 179 - - - Prior year (over)/under provision of income tax (8,136) (6,806) (7,358) (8,965) Adjustment to prior year tax 24,568 - 24,568 -

Total income tax expense attributable to operating profit 62,371 18,550 61,105 14,419

Note 4. TAX ASSETS

Consolidated Corporation 2004 2003 2004 2003 $’000 $’000 $’000 $’000

Current Future Income Tax Benefit - 499 - - Total Current Tax Assets - 499 - - Non-Current Future Income Tax Benefit 51,439 50,991 51,439 42,253 Total Non-Current Tax Assets 51,439 50,991 51,439 42,253

Note 5. TAX LIABILITIES

Consolidated Corporation 2004 2003 2004 2003 $’000 $’000 $’000 $’000

Current Provision for Income Tax 46,339 - 46,339 - Total Current Tax Liabilities 46,339 - 46,339 -

Non-Current

Deferred Income Tax liability 136,659 114,572 136,659 110,372 Total Non-Current Tax Liabilities 136,659 114,572 136,659 110,372

COUNTRY ENERGY ANNUAL REPORT 2003–2004 55 Notes to the Financial Statements for the year ended 30 June 2004

Note 6. DIVIDENDS

Dividends were paid during the year of $29.764 million ($12 million in 2003). $29.557 million of these were recognised as a liability at the prior year’s balance date (refer note 17). A dividend of $29.764 million has been provided for at balance date ($29.557 million in 2003).

Note 7. CASH ASSETS

Consolidated Corporation 2004 2003 2004 2003 $’000 $’000 $’000 $’000

Cash and deposits 93 8,380 83 8,373 Investments at Call – TCorp at cost 11,433 29,388 11,433 21,172 Total Cash Assets 11,526 37,768 11,516 29,545

Note 8. RECEIVABLES

Consolidated Corporation 2004 2003 2004 2003 $’000 $’000 $’000 $’000

Current Trade debtors 122,225 126,797 122,048 126,500 Provision for doubtful debts (3,538) (3,158) (3,538) (3,158) Trade debtors, net of provision 118,687 123,639 118,510 123,342 Other debtors 100,805 86,995 100,704 86,995 Provision for doubtful debts (399) (725) (399) (725) Other debtors, net of provision 100,406 86,270 100,305 86,270 Subsidiary debtors - - 10,315 10,338 Total Current Receivables 219,093 209,909 229,130 219,950 Non-Current Other debtors 221 1,113 221 1,113

Over-funded superannuation 25,161 18,757 25,161 18,757 Total Non-Current Receivables 25,382 19,870 25,382 19,870

Note 9. INVENTORIES

Consolidated Corporation 2004 2003 2004 2003 $’000 $’000 $’000 $’000

Inventories – at lower of cost and net realisable value 19,534 18,941 19,534 18,941 Total Inventories 19,534 18,941 19,534 18,941

56 COUNTRY ENERGY ANNUAL REPORT 2003–2004 Notes to the Financial Statements for the year ended 30 June 2004

Note 10. INVESTMENTS IN SUBSIDIARY CORPORATIONS

Consolidated Corporation 2004 2003 2004 2003 $’000 $’000 $’000 $’000

Investments in subsidiary corporations - - 36,871 37,871 Total Investments in Subsidiary Corporations - - 36,871 37,871

Note 11. OTHER ASSETS

Consolidated Corporation 2004 2003 2004 2003 $’000 $’000 $’000 $’000

Current Prepayments 7,073 4,147 7,073 4,147 Total Current Other Assets 7,073 4,147 7,073 4,147 Non-Current Prepayments 7,247 - 7,247 - Other assets 1,445 1,550 1,436 1,485 Loans to subsidiaries - - 113,957 121,553 Total Non-Current Assets 8,692 1,550 122,640 123,038

COUNTRY ENERGY ANNUAL REPORT 2003–2004 57 Notes to the Financial Statements for the year ended 30 June 2004

Note 12. PROPERTY, PLANT AND EQUIPMENT

Consolidated Corporation 2004 2004 $’000 $’000

System Assets Opening carrying value At fair value 2,293,853 2,161,879 Accumulated depreciation (374,008) (363,024) Net opening carrying value 1,919,845 1,798,855 Movements Additions 259,818 251,800 Depreciation expense (83,801) (79,519) Net movements 176,017 172,281 Closing carrying value At fair value 2,553,667 2,413,679 Accumulated depreciation (457,805) (442,543) Net closing carrying value 2,095,862 1,971,136 Land and Buildings Opening carrying value At fair value 76,082 76,082 Accumulated depreciation (6,811) (6,811) Net opening carrying value 69,271 69,271 Movements Additions 4,233 4,233 Disposals (1,227) (1,227) Depreciation expense (1,936) (1,936) Net movements 1,070 1,070 Closing carrying value At fair value 78,971 78,971 Accumulated depreciation (8,630) (8,630) Net closing carrying value 70,341 70,341 Plant and Equipment Opening carrying value At fair value 360,425 360,425 Accumulated depreciation (181,800) (181,800) Net opening carrying value 178,625 178,625 Movements Additions 62,241 62,241 Disposals (5,169) (5,169) Depreciation expense (42,151) (42,151) Net movements 14,921 14,921 Closing carrying value At fair value 412,820 412,820 Accumulated depreciation (219,274) (219,274) Net closing carrying value 193,546 193,546 Net Carrying Value of Property, Plant and Equipment 2,359,749 2,235,023

58 COUNTRY ENERGY ANNUAL REPORT 2003–2004 Notes to the Financial Statements for the year ended 30 June 2004

Note 13. INTANGIBLE ASSETS

Consolidated Corporation 2004 2003 2004 2003 $’000 $’000 $’000 $’000

Franchise Setup Fees 76 76 76 76 Accumulated amortisation (30) (22) (30) (22) Alliance 16 16 16 16 Accumulated amortisation (16) (16) (16) (16) Net Setup and Alliance 46 54 46 54 Business Retail licences - 323 - 323 Accumulated amortisation - (288) - (288) Net Business Retail licences - 35 - 35 Goodwill 4,701 4,701 51 51 Accumulated amortisation (1,058) (593) (51) (51) Net Goodwill 3,643 4,108 - - Natural Gas Distributor and Retail licences at Directors’ Valuation 24,740 24,740 10,552 10,552 Accumulated amortisation (2,474) - (1,055) - Net Natural Gas Distributor and Retail licences 22,266 24,740 9,497 10,552 Total Intangible Assets 25,955 28,937 9,543 10,641

Note 14. DEPOSITS

Consolidated Corporation 2004 2003 2004 2003 $’000 $’000 $’000 $’000

Current Electricity Customers 14,475 13,064 14,475 13,064 Contractors and Others 1,067 1,062 1,067 1,062 Total Current Deposits 15,542 14,126 15,542 14,126

Deposits are paid by customers and contactors as security against the entity’s assets or debts held by those customers. These are liabilities that may be repayable after balance date.

COUNTRY ENERGY ANNUAL REPORT 2003–2004 59 Notes to the Financial Statements for the year ended 30 June 2004

Note 15. PAYABLES

Consolidated Corporation 2004 2003 2004 2003 $’000 $’000 $’000 $’000

Current Trade creditors – unsecured 13,164 94,016 13,125 93,188 Other creditors – unsecured 45,801 9,668 45,745 9,668 Accrued interest expense 42,961 38,307 42,961 38,307 Accrued energy and transmission purchases 102,027 - 102,027 - Accrued trade creditors 29,583 - 29,583 - Accrued inventory purchases 1,874 - 1,874 - Other accrued expenses 2,366 68,455 2,294 68,444 Subsidiary creditors – unsecured - - 7,262 1,370 Total Current Payables 237,776 210,446 244,871 210,977

Accrued energy and transmission purchases, accrued trade creditors and accrued inventory purchases are shown separately for the first time in these statements. In the 2003 financial statements these were aggregated with trade creditors and other accrued expenses. There are no separate comparative figures available.

Note 16. INTEREST BEARING LIABILITIES

Consolidated Corporation 2004 2003 2004 2003 $’000 $’000 $’000 $’000

Current Bank Overdraft 9,371 - 9,371 - Loans 433,286 420,760 433,286 420,760 Total Current Interest Bearing Liabilities 442,657 420,760 442,657 420,760 Non-Current Loans 1,081,785 1,036,285 1,081,785 1,036,285 Total Non-Current Interest Bearing Liabilities 1,081,785 1,036,285 1,081,785 1,036,285 Due to be repaid: Not later than one year 442,656 420,760 442,656 420,760 Later than one year but not later than two years 281,899 143,749 281,899 143,749 Later than two years but not later than five years 452,841 657,077 452,841 657,077 Later than five years 347,046 235,459 347,046 235,459 Total Interest Bearing Liabilities 1,524,442 1,457,045 1,524,442 1,457,045

All loans are guaranteed by the NSW Government.

60 COUNTRY ENERGY ANNUAL REPORT 2003–2004 Notes to the Financial Statements for the year ended 30 June 2004

Note 17. PROVISIONS

Consolidated Corporation 2004 2003 2004 2003 $’000 $’000 $’000 $’000

Current Dividends 29,764 29,557 29,764 29,557 Employee benefits 41,462 34,351 41,462 34,351 Provision for establishment - 1,137 - 1,137 Provision for environmental rectification 1,910 2,000 1,910 2,000 Other provisions 4,251 2,500 3,751 2,000 Total Current Provisions 77,387 69,545 76,887 69,045 Non-Current Employee benefits 96,761 89,951 96,761 89,951 Total Non-Current Provisions 96,761 89,951 96,761 89,951 Movement in Provisions (i) Dividends Opening carrying amount 29,557 29,557 Amounts utilised during the year (29,557) (29,557) Additional provision 29,764 29,764 Closing carrying amount 29,764 29,764 (ii) Provision for establishment Opening carrying amount 1,137 1,137 Amounts utilised during the year (1,137) (1,137) Closing carrying amount - - (iii) Provision for environmental rectification Opening carrying amount 2,000 2,000 Amounts utilised during the year (90) (90) Closing carrying amount 1,910 1,910 (iv) Other provisions Opening carrying amount 2,500 2,000 Additional provision 1,751 1,751 Closing carrying amount 4,251 3,751 Other provisions reflect liabilities arising in the course of the Corporation’s trading activities, operating activities and investments by subsidiaries.

Note 18. OTHER LIABILITIES

Consolidated Corporation 2004 2003 2004 2003 $’000 $’000 $’000 $’000

Current Deferred interest 648 385 648 385 Other liabilities 2,924 2,981 611 312 Total Current Other liabilities 3,572 3,366 1,259 697 Non-Current Deferred Interest 3,451 4,099 3,451 4,099 Loan from subsidiary - - - 1,000 Under-funded superannuation liability 24 24 24 24 Total Non-Current Other Liabilities 3,475 4,123 3,475 5,123

COUNTRY ENERGY ANNUAL REPORT 2003–2004 61 Notes to the Financial Statements for the year ended 30 June 2004

Note 19. COMPONENTS OF EQUITY

Consolidated Corporation 2004 2003 2004 2003 $’000 $’000 $’000 $’000

Contributed Equity Opening Balance 95,563 95,563 95,563 95,563 Contributed Equity Closing Balance 95,563 95,563 95,563 95,563

Asset Revaluation Reserve Opening balance 347,205 347,205 347,205 347,205 Asset Revaluation Reserve Closing Balance 347,205 347,205 347,205 347,205

Retained Profits Opening Balance 232,619 225,287 251,111 244,710

Movement: Profit from ordinary activities after income tax expense 78,339 36,889 75,273 36,530 Dividends Provided and Paid (29,971) (29,557) (29,971) (29,557) Return of contributed equity from subsidiary - - - (572) Retained Profits Closing Balance 280,987 232,619 296,413 251,111

The Asset Revaluation Reserve comprises increments and decrements resulting from revaluations of property, plant and equipment.

Note 20. FINANCE FACILITIES

Consolidated Corporation 2004 2003 2004 2003 $’000 $’000 $’000 $’000

At balance date the Corporation had access to the following finance facilities: Bank overdraft 12,000 12,000 12,000 12,000 Lines of credit 123,930 123,930 123,930 123,930 Loans 1,785,000 1,664,000 1,785,000 1,664,000 Lease facilities 5,800 5,800 5,800 5,800 Total available finance facilities 1,926,730 1,805,730 1,926,730 1,805,730

At balance date the unused amounts of those facilities listed above were: Bank overdraft 12,000 12,000 12,000 12,000 Lines of credit 119,795 119,864 119,795 119,864 Loans 105,929 42,955 105,929 42,955 Total unused finance facilities 237,724 174,819 237,724 174,819

62 COUNTRY ENERGY ANNUAL REPORT 2003–2004 Notes to the Financial Statements for the year ended 30 June 2004

Note 21. NOTES TO THE STATEMENT OF CASH FLOWS FOR THE YEAR ENDED JUNE 2004

Consolidated Corporation 2004 2003 2004 2003 $’000 $’000 $’000 $’000

(a) Components of Cash Cash on Hand 93 8,380 83 8,373 Cash at Bank/(Overdraft) (9,371) - (9,371) - Investment securities 11,433 29,388 11,433 21,172 2,155 37,768 2,145 29,545

(b) Reconciliation of operating profit after income tax expense to cash provided by operating activities

Profit from Ordinary Activities after Income Tax Expense 78,339 36,889 75,273 36,530 Consolidation Adjustment (2,252) - - - Items classified as investing/finance activities: (Profit)/loss on sale of property, plant and equipment (1,373) (94) (1,373) (94) Net Community Service Obligation expense 179 105 179 105

Non-cash items: Amounts set aside to provisions 60,785 1,092 60,785 592 Depreciation 127,887 117,596 123,606 113,415 Amortisation 2,981 425 1,097 115 Write down of non-current assets - 1,387 - - Prepaid superannuation (6,403) 12,247 (6,403) 12,247 Increase/(decrease) in deferred taxes payable 20,919 25,348 17,102 21,216 Other - 2,661 - 2,661

Changes in assets and liabilities during the financial year: (Increase)/decrease in unread meters (39,057) (8,915) (39,057) (8,915) (Increase)/decrease in receivables (16,443) (39,899) (10,672) (39,668) (Increase)/decrease in inventories (593) 577 (593) 577 (Increase)/decrease in prepayments and other current assets (3,027) (2,702) (2,926) (2,518) (Increase)/decrease in operating non-current receivables 892 (224) 892 (224) (Increase)/decrease in other operating non-current assets (7,143) 2,886 397 1,509 Increase/(decrease) in operating payables 33,199 37,486 33,896 39,749 Increase/(decrease) in customer deposits 1,416 828 1,416 828 Increase/(decrease) in other operating liabilities (58) (175) (702) (155) Net cash provided by operating activities 250,248 187,518 252,917 177,970

COUNTRY ENERGY ANNUAL REPORT 2003–2004 63 Notes to the Financial Statements for the year ended 30 June 2004

Note 22. FINANCIAL INSTRUMENTS — CONSOLIDATED % 2003 interest rate interest Weighted avg. Weighted Total ing, or ts and bearing Non-interest Non-interest Fixed interest rate maturing in: Fixed interest 1 year or less 1 to 5 years than 5 years More rate $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 % $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 Floating interest Floating interest Note 2004 2003 2004 2003 2004 2003 2004 2003 2004 2003 2004 2003 2004 Assets 11,433 29,388 204 469 109 763 - 174 397,285 340,658 409,031 371,452 409,031 2004 Financial 340,658 Assets Cash Investments397,285 Receivables174 Other 7,10- 11,433 Financial Total 763 7 29,388 Assets 8109 2004 Financial - 469 11 - - Liabilities 204 Overdraft - - - - Borrowings29,388 11,433 Payables 204 - - - Other 16 469 16 Financial 416,306 Total 127,500 9,371 114,928 - - 420,760 109 Liabilities - 636,973 15 673,326 346,864 235,459 14,18 763 1,689,106 - 1,784,807 - 231,061 235,459 - - 259,365 346,864 1,000 673,326 - 636,973 420,760 - 114,928 - 128,500 1,000 426,677 - - - - - 174 - 381,427 1,515,071 1,457,045 326,581 - - 381,740 6.03 - - - 327,987 - 10.37 6.25 10.40 ------11,433 - - 29,388 93 - 5.25 - 8,380 15,765 - 4.89 - 5,697 - 93 15,765 - 8,380 - 5,697 - - - - - 21,589 - 20,615 237,776 210,446 - - - 237,776 22,589 210,446 21,615 9,371 3.83 - 3.79 - 8.35 - - (a) Interest Rate Risk (a) Interest float that are rates on borrowings The Corporation enters into contracts to manage cash flow risks associated with the interest dates between assets and liabilities. mismatches in repricing arising from rate exposures to alter interest rate for classes of financial asse weighted average interest rate risk and the effective to interest exposure The Corporation’s financial liabilities is set out below:

64 COUNTRY ENERGY ANNUAL REPORT 2003–2004 Notes to the Financial Statements for the year ended 30 June 2004

(b) Credit Risk Credit risk represents the loss that would be recognised if counterparties failed to meet their financial obligations.

The credit risk of financial assets, excluding investments, of the Corporation which have been recognised on the Statement of Financial Position is reflected in the carrying amount net of any provision for doubtful debts.

The Corporation minimises concentrations of credit risk by undertaking transactions with a large number of customers and counterparties in Australia. The Corporation is not materially exposed to any individual customer or counterparty.

Credit risk related to derivative contracts is minimised by ensuring counterparties are approved under the Masters Agreements of the International Swaps and Derivatives Association Inc (ISDA).

Foreign exchange contracts are subject to credit risk in relation to the relevant counterparties, which are principally large banks. The maximum credit risk exposure on foreign exchange contracts is the full amount of foreign currency the Corporation pays.

(c) Net Fair Value of Financial Assets and Liabilities Financial instruments are carried at net fair value unless stated otherwise. These are disclosed in note 22(a) above. Other than loan debt which is actively managed under a risk management agreement with NSW Treasury Corporation (TCorp), financial assets and liabilities are not readily traded on organised markets in standardised form.

All financial instruments are disclosed on the Statement of Financial Position.

(d) Derivative Financial Instruments The Corporation is exposed to changes in interest rates, foreign exchange rates and commodity prices from its activities. The following derivative instruments are used to hedge these risks: interest rate futures contracts, forward foreign exchange contracts and futures commodity price contracts. Derivative financial instruments are not held for speculative purposes.

(i) Electricity Purchases The Corporation enters into wholesale market contracts to minimise exposure to fluctuations in wholesale market electricity prices. The Corporation’s policy is to manage its exposure in line with the forecast volumes of committed retail customers.

For its franchise load, the Corporation operates under the Electricity Tariff Equalisation Fund (ETEF), administered by NSW Treasury. Under the ETEF, the Corporation pays a set price for its electricity purchases and is not exposed to pool price variation.

For its contestable load, the Corporation’s policy is to actively manage the exposure arising from its forecast contestable load. In doing so, the Corporation has entered various hedging contracts (bought and sold swaps and options) with individual market participants. Any unhedged position exposes the Corporation to pool price variation. The Corporation’s policy is that the exposure and the consequent contract price risk are managed within Board approved limits.

As these contracts can be settled other than by physical delivery of the underlying commodity, they are classified as financial instruments in accordance with Australian Accounting Standard AAS33 “Presentation and Disclosure of Financial Instruments”. In entering into these contracts for the purposes of managing the risks associated with retail sales, the gains and costs of entering these contracts and any realised or unrealised gains and losses are deferred until the underlying sales occur. On settlement, the contracted price is compared to the spot price on that date and the price differential is applied to the contracted quantity. A net amount is paid or received by the entity.

The following table details the terms and values of the Corporation’s outstanding electricity hedging contracts at the reporting date.

COUNTRY ENERGY ANNUAL REPORT 2003–2004 65 Notes to the Financial Statements for the year ended 30 June 2004

Net Fair Net Fair Face Face Value Value Value Value 2004 2003 2004 2003 $’000 $’000 $’000 $’000

Contracts 1 year or less 273,015 271,632 259,552 311,110 1 to 5 years 269,805 415,291 251,744 421,382 More than 5 years 13,169 37,359 10,993 33,332 555,989 724,282 522,289 765,824

At balance date, the Corporation’s electricity hedging contracts generated a net unrecognised gain of $33.700 million (loss of $41.542 million in 2003). As these contracts are held for the purpose of hedging contracted mass-market customer sales and contracted commercial and industrial customer load, no ultimate net gain is expected upon realisation. The net unrecognised gain is calculated in accordance with prices sourced from the Australian Financial Markets Association (AFMA). The AFMA market price estimates are based on prices usually quoted for small volume contracts and are therefore not necessarily representative of independent market price valuations for the larger volume contracts entered into by the Corporation, for which there are no readily available market price valuations.

All contracts are due to be settled within 7 years of the reporting date.

(ii) Foreign Exchange Contracts The Corporation enters into forward foreign exchange contracts to hedge certain anticipated purchase commitments denominated in foreign currencies (refer note 1(p)).

The Corporation’s policy is to enter into forward foreign exchange contracts to hedge 100% of foreign currency risk where contract value exceeds $0.05 million within Board approved limits. The amount of anticipated future purchases is forecast in light of commitments from suppliers.

The details of outstanding forward foreign exchange contracts are listed in the following table:

2004 2003 2004 2003 $’000 $’000 Weighted Exchange Rate

Settlement less than 12 months Buy Canadian dollars 29 - 0.93 - Buy Euros 71 - 0.57 - Buy US dollars - 91 0.59 0.59

As these contracts are hedging anticipated purchases, any unrealised gains and losses on the contracts together with the costs of the contract will be recognised in the financial statements at the time the underlying transaction occurs. The net unrecognised loss on hedges for anticipated foreign currency purchases at 30 June 2004 was $0.011 million ($0.017 million in 2003).

Where the underlying transaction occurred on or before balance date, the effect of the hedge has been recognised in the financial statements.

(iii) Interest Rate Swaps Interest rate swap transactions entered into by the Corporation exchange variable and fixed interest payment obligations to protect long term borrowings from the risk of increasing interest rates. Variable and fixed interest rate debt is held, and swap contracts are entered, to receive interest at both variable and fixed rates.

The settlement dates of the swap contracts correspond with interest payment dates of the borrowings. The swap contracts require settlement of the net interest receivable or payable and are brought to account as an adjustment to borrowing costs.

The details of interest rate swap contracts are listed in the following table:

66 COUNTRY ENERGY ANNUAL REPORT 2003–2004 Notes to the Financial Statements for the year ended 30 June 2004

Market Value Unrecognised Effective Avg Interest Notional Principal Gains/(Losses) Rate Payable 2004 2003 2004 2003 2004 2003 $’000 $’000 $’000 $’000 % %

Settlement due within 12 Months 49,500 - (31) - 5.19 - Settlement due in 1 to 2 years 94,451 49,500 (667) 527 5.74 4.79 Settlement due in 2 to 5 years 198,356 118,500 (4,645) 3,193 6.08 4.77 Settlement due after 5 years 170,193 393,600 (10,071) (29,253) 7.26 6.38 512,500 561,600 (15,414) (25,533)

Note 23. COMMITMENTS

Consolidated Corporation 2004 2003 2004 2003 $’000 $’000 $’000 $’000 a. Capital expenditure commitments Estimated capital expenditure contracted for at balance date but not provided for - not later than one year 29,812 8,771 29,812 8,771 - later than one year and not later than five years 7,262 13,832 7,262 13,832 37,074 22,603 37,074 22,603 Capital expenditure commitments include input tax credits 3,370 872 3,370 872 b. Operating expenditure commitments excluding leases Estimated operating expenditure contracted for at balance date but not provided for - payable not later than one year 42,934 25,420 42,692 25,420 - later than one year and not later than five years 24,642 36,937 24,620 36,937 - later than five years 8,861 - 8,578 - 76,437 62,357 75,890 62,357 Operating expenditure commitments include input tax credits 6,949 2,463 6,899 2,463 c. Operating lease (equipment) expenditure commitments (refer note 1(i)) - not later than one year 3,082 4,306 3,082 4,306 - later than one year and not later than five years 1,419 3,283 1,419 3,283 4,501 7,589 4,501 7,589

Equipment Lease expenditure commitments include input tax credits 409 760 409 760 d. Operating lease (property) expenditure commitments (refer note 1(i)) - not later than one year 4,552 4,385 4,552 4,385 - later than one year and not later than five years 15,155 15,035 15,155 15,035 - later than five years 1,795 3,202 1,795 3,202 21,502 22,622 21,502 22,622 Property Lease expenditure commitments include input tax credits 1,955 1,776 1,955 1,776 e. Operating lease (property) revenue commitments (refer note 1(i)) - not later than one year 984 874 984 874 - later than one year and not later than five years 2,642 1,265 2,642 1,265 - later than five years 75 - 75 - 3,701 2,139 3,701 2,139

COUNTRY ENERGY ANNUAL REPORT 2003–2004 67 Notes to the Financial Statements for the year ended 30 June 2004

There are 3,379 non-cancellable equipment leases referred to in section c above. This includes leases for 3,357 items of computer equipment. The majority of the leases have no contingent rentals, renewal options, conditions or restrictions. Minimum lease payments total $4.501 million ($7.590 million in 2003), including input tax credits of $0.409 million ($0.690 million in 2003).

There are 74 non-cancellable property leases referred to in d above. The majority of the leases have contingent rentals either based on CPI or some other increment, and renewal options between 1 and 5 years. Minimum lease payments total $4.408 million ($7.966 million in 2003) including input tax credits of $0.401 million ($0.724 million in 2003). There are no conditions or restrictions.

Additional to the group noted above, there are two leases with five year plus five year renewal options. Minimum lease payments are $17.094 million ($14.656 million in 2003), including input tax credits of $1.554 million ($1.332 million in 2003). Minimum lease payments upon renewal, will be based on the market value applying at the time. The lease may be assigned in part or in whole, and sublet in part or in whole, with the consent of the lessor.

There are 106 property leases referred to in e above. The following values have been recognised in the financial statements in respect of the revenue earning leases.

2004 2003 $’000 $’000

Gross amount of asset 7,461 6,446 Accumulated depreciation 697 795 Depreciation recognised as an expense 151 157 Lease commitments receivable 251 -

Note 24. AUDITORS’ REMUNERATION

Consolidated Corporation 2004 2003 2004 2003 $’000 $’000 $’000 $’000

Remuneration received, or due and receivable, by the auditor of the economic entity for:

– An audit or review of the financial statements 441 466 406 450

Remuneration received, or due and receivable, by auditors, other than of the auditor of the economic entity for:

– An audit or review of the financial statements 34 33 34 33

Note 25. DIRECTORS’ REMUNERATION

Consolidated Corporation 2004 2003 2004 2003 $’000 $’000 $’000 $’000

The aggregate amount of remuneration paid or due and payable, directly or indirectly to directors, but excluding salaries of full time officers: 403 391 403 391 The aggregate amount of retirement benefits paid to superannuation plans during the financial year for the benefit of directors: 36 35 36 35

68 COUNTRY ENERGY ANNUAL REPORT 2003–2004 Notes to the Financial Statements for the year ended 30 June 2004

Note 26. RELATED PARTIES

Directors The names of persons holding the position of Director of Country Energy during the financial year are:

Barbara Ward (Chairman) Tim Sullivan OAM Craig Murray (Managing Director) Rowena Sylvester Michael Lee John Wearne AM Greg McLean

Details of directors’ remuneration are set out in note 25.

Some Directors of Country Energy are also Directors of other companies, or have a substantial interest in other companies or entities, that may have had transactions with Country Energy during the year. A Register of Directors’ Interests is confirmed and noted at each meeting of the Board. During the year no Directors declared material interests in any matters discussed at the meetings.

Wholly-owned Group The wholly-owned group consists of Country Energy and its wholly-owned controlled entities, EMMLINK Pty Limited, NorthPower Energy Services Pty Limited and Country Energy Gas Pty Limited.

Ownership interests in these entities is set out in note 27.

Other Related Parties Country Energy has an interest in a joint venture. Details are set out in note 30.

Note 27. CONTROLLED ENTITIES The Group includes a consolidation of the following controlled entities, incorporated in Australia.

Name of Entity Shares Held Interest

EMMLINK Pty Limited 10,000,000 Ordinary shares – $1 each 100% NorthPower Energy Services Pty Limited 2 Ordinary shares – $1 each 100% Country Energy Gas Pty Limited 26,870,593 Ordinary shares – $1 each 100%

The following is a comparison of consolidated key figures for each subsidiary and their proportion to group totals.

Operating Profit (Loss) Total Revenue Before Income Tax Total Assets 2004 2003 2004 2003 2004 2003 $’000 $’000 $’000 $’000 $’000 $’000

Country Energy 1,632,957 1,490,226 139,851 50,949 2,717,011 2,476,109 EMMLINK Pty Limited 1,498 4,306 (1,249) 1,755 49,705 62,367 NorthPower Energy Services Pty Limited - - - - - 1,000 Country Energy Gas Pty Limited 9,382 9,433 2,108 2,735 98,992 99,085 Group Total 1,643,837 1,503,965 140,710 55,439 2,865,708 2,638,561

Note 28. STATEMENT OF OPERATIONS BY SEGMENT

Segment information is prepared in conformity with the accounting policies of the entity as disclosed in note 1 and the Australian Accounting Standard AASB 1005 Segment Reporting.

Segment revenues, expenses, assets and liabilities are those that are directly attributable to that segment, and also include any portion that can be allocated to that segment on a reasonable basis. Segment assets and liabilities include those that are used by that segment and includes allocations of assets and liabilities attributable to that segment using appropriate drivers as a reasonable estimate. Segment assets exclude income tax assets and financing assets. Segment liabilities exclude income tax liabilities, dividend provision, borrowings, bank overdraft and other financing liabilities. COUNTRY ENERGY ANNUAL REPORT 2003–2004 69 Notes to the Financial Statements for the year ended 30 June 2004

Business Segments The consolidated entity operates in the Energy Segment. This involves the distribution and retailing of electricity and gas. Revenue is earned from sales to both franchise and contestable customers as well as from electricity retailers for the use of its electricity network.

Geographical Segments The consolidated entity operates in one geographical segment, being Australia.

Energy Other Consolidated 2004 2003 2004 2003 2004 2003 $’000 $’000 $’000 $’000 $’000 $’000

PRIMARY REPORTING – BUSINESS SEGMENTS Revenue Sales to external customers 1,518,189 1,393,473 45,029 48,179 1,563,218 1,441,652 Total Sales Revenue 1,518,189 1,393,473 45,029 48,179 1,563,218 1,441,652 Other revenue 78,651 60,570 41 - 78,692 60,570 Total Segment Revenue 1,596,840 1,454,043 45,070 48,179 1,641,910 1,502,222 Reconciliation of Segment Revenue To Entity Revenue from Ordinary Activities Total segment revenue 1,641,910 1,502,222 Add: investment income 1,927 1,743 Revenue from ordinary activities 1,643,837 1,503,965 Expenses Non cash expenses included in segment results 40,631 39,137 - - 40,631 39,137 Depreciation and amortisation included in segment results 127,888 117,596 96 597 127,984 118,193 Segment Result 246,905 162,263 3,173 (4,346) 250,078 157,917 Reconciliation of Segment Result to Entity Net Profit after Tax Segment Result 250,078 157,917 Add: revenues excluded from segment result 1,927 1,743 Less: expenses excluded from segment result (111,295) (104,221) Profit from ordinary activities before income tax expense 140,710 55,439 Income tax expense (62,371) (18,550) Profit from ordinary activities after income tax expense 78,339 36,889 Assets and Liabilities Segment assets 2,696,018 2,439,115 106,725 110,188 2,802,743 2,549,303 Assets excluded from segment assets 62,965 89,258 Total Entity Assets 2,865,708 2,638,561 Segment Liabilities 348,381 237,880 86,132 153,677 434,513 391,557 Liabilities excluded from segment liabilities 1,707,440 1,571,617 Total Entity Liabilities 2,141,953 1,963,174

SECONDARY REPORTING – GEOGRAPHICAL SEGMENTS Revenue by location of customer 1,641,910 1,502,222 Carrying amounts of segment assets by location 2,802,743 2,549,303 Acquisition of non-current assets by location 326,292 297,520

70 COUNTRY ENERGY ANNUAL REPORT 2003–2004 Notes to the Financial Statements for the year ended 30 June 2004

Note 29. SUPERANNUATION PLANS

The Corporation contributes to one defined contribution and several defined benefit employee superannuation plans of the Energy Industries Superannuation Schemes Pty Ltd. The Corporation also contributes to a defined employee benefit plan of the Electricity Supply Industry Superannuation (Qld) Ltd.

In the case of the defined benefit employee superannuation plans, employer contributions are based on the advice of the plans’ actuaries. Employee contributions are based on various percentages of employee gross salaries. After serving a qualifying period all employees are entitled to benefits on retirement, disability or death.

The plans provide defined benefits based on years of service and final average salary. In accordance with the various Trust Deeds the Corporation is under no legal obligation to make up any shortfall in the plans’ assets to meet payments due to employees.

An assessment of the defined benefit plans as at 30 June 2004 was carried out by Superannuation Services Company Pty Limited for NSW employees. The actuaries used by the trustees were William M Mercer Pty Limited (NSW). The authorities concluded that the assets of the plans were sufficient to meet all benefits payable in the event of the plans’ termination or the voluntary or compulsory termination of all contributors of the Corporation.

The most recent assessment of the defined benefit plans for QLD employees was performed in June 2002 by Electricity Supply Industry Superannuation (Qld) Ltd. At that time, the actuaries used by the trustees were NSP Buck Pty Limited (QLD), who concluded that the assets of the plan were sufficient to meet all benefits payable in the event of the plan’s termination or the voluntary or compulsory termination of all contributors of the Corporation.

Accordingly, the amounts included in this disclosure for the Electricity Supply Industry Superannuation Fund (Qld) is the most recent information available, being measured as at 1 July 2002.

Only four Country Energy employees belong in the Electricity Supply Industry Superannuation Fund (Qld), and as such, the amounts disclosed are not material.

The accrued benefits and plan assets at net market value are set out below. Accrued benefits are benefits which the plans are presently obliged to pay at some future date as a result of membership of the plans.

The directors, based on the advice of the trustees of the plans, are not aware of any changes in circumstances since the date of the most recent financial statements of the plans which would have a material impact on the overall financial position of the plans.

The 2004 estimates are based on the table of assumptions below. The actuary has made these estimates based upon a number of assumptions in relation to member “exits” from the schemes.

Actuarial Assumptions 2004 2005 2006 Thereafter %%%%

Energy Industries Superannuation Scheme Rate of Investment return 13.6 7.5 7.5 7.5 Rate of salary escalation 4.0 4.0 4.0 4.0 Rate of CPI increase 2.5 2.5 2.5 2.5

State Superannuation Scheme & State Authorities Non-Contributory Superannuation Scheme Rate of Investment return 7.0 7.0 7.0 7.0 Rate of salary escalation 4.0 4.0 4.0 4.0 Rate of CPI increase 2.5 2.5 2.5 2.5

Actuarial assumptions are not available for the Electricity Supply Industry Superannuation Fund (Qld)

COUNTRY ENERGY ANNUAL REPORT 2003–2004 71 Notes to the Financial Statements for the year ended 30 June 2004

2004 2003 $’000 $’000

Employer contributions paid to the plans during the financial year 16,822 15,008

Plans Assets at DEFINED BENEFIT PLANS Total Accrued Benefits Excess/(Deficit) Market Value 2004 2003 2004 2003 2004 2003 $’000 $’000 $’000 $’000 $’000 $’000

Energy Industries Superannuation Scheme 172,624 154,188 147,638 135,525 24,986 18,663 State Superannuation Scheme 440 381 297 311 143 70 State Authorities Non-Contributory 17 13 41 36 (24) (23) Superannuation Scheme State Authorities Superannuation Scheme 6 - - - 6 - Electricity Supply Industry Superannuation Fund 922 922 898 898 24 24 (Qld)

174,009 155,504 148,874 136,770 25,135 18,734

The total amount of excess between the market values and accrued benefits of the plans, has been recognised as a receivable in the Statement of Financial Position (refer note 8). Where the plans accrued benefits exceed the market values, a liability has been recognised in the Statement of Financial Position (refer note 18).

The movement during the year being an increase in the excess has been recognised as revenue in the Statement of Financial Performance.

The components of the amounts disclosed in the Statement of Financial Performance are as follows:

2004 2003 $’000 $’000

Contribution valuation adjustment (6,403) 12,247 Superannuation cost 16,822 15,016 10,419 27,263

Note 30. JOINT VENTURE

Consolidated Corporation 2004 2003 2004 2003 $’000 $’000 $’000 $’000

Country Energy has a 20% participating interest in a joint venture arrangement to develop a wind farm.

The Corporation’s share of the assets employed in the joint venture is included in the consolidated Statement of Financial Position under the classification of Non-Current Assets - property, plant and equipment. 1,587 1,655 1,587 1,655

72 COUNTRY ENERGY ANNUAL REPORT 2003–2004 Notes to the Financial Statements for the year ended 30 June 2004

Note 31. CONTINGENT LIABILITIES

There are no known contingent liabilities that would impact on the state of affairs of the economic entity or have a material effect on these financial statements.

Note 32. EVENTS SUBSEQUENT TO BALANCE DATE

There are no known events that would impact on the state of affairs of the economic entity or have a material impact on these statements.

END OF AUDITED FINANCIAL STATEMENTS

COUNTRY ENERGY ANNUAL REPORT 2003–2004 73 CUSTOMER INFORMATION

The following publications are available at Your rights regarding bills and charges for gas www.countryenergy.com.au, from customer service Electricity Industry Guideline No.13 Greenhouse gas centres or through our call centre on 13 23 56. disclosure on electricity customers’ bills Guideline No.10: Confidentiality and explicit informed Licence compliance reports consent – Electricity and gas Demand Management Strategies

Greenhouse Gas Emissions Corporate Minimum Standards of Service Annual Report 2002-2003 Sources of Electricity Supplied Country Energy’s Privacy Policy System Expansion Customer Installation Safety Plan Electrical Hazard Awareness Network and pricing Electrical Safety for Plumbers Capital Contributions Electrical Safety Rules Code of Practice Electricity Network Services Pricing and Service Environment Policy Information Package 2001 Health and Safety Policy Electricity Supply Standard Identifying Potential Cogeneration Sites Network Price List August 2002 Keep Structures a Safe Distance Reimbursement Scheme for Rural and Large Public Electrical Safety Awareness Plan Load Customers Safety First Handbook Wagga Wagga and Uranquinty Natural Gas Price List Sponsorship Guidelines Proposed network improvements Statement of Affairs for the Period Ending 30 June 2003 Electricity System Development Review 2002 Vegetation Management Plan Joint TransGrid and Country Energy Request for Proposals for Demand Management or local generation on the Mid North Coast

Retail regulation Country Energy regulated retail price list – July 2004 Standard form customer supply contract (Electricity) Summary for small retail customers of standard form electricity connection contract Your rights regarding bills and charges for electricity Standard form customer connection contract Negotiated short form customer connection contract Standard Form Contract – Terms and conditions for the supply of natural gas Summary for small retail customers of Country Energy Standard form gas contract

74 COUNTRY ENERGY ANNUAL REPORT 2003–2004 GLOSSARY OF TERMS

AHO Aboriginal Housing Office SAIDI System Average Interruption Duration ATL Average Time Lost Index AMOSS Asset Management and Operating SCADA Supervisory Control and Data Support System Acquisition CIS Customer Information System SECIT Safety and Environment Corporate Improvement Team CPI Consumer Price Index SEDA Sustainable Energy Development CSC Customer Service Centre Authority DMS Distribution Management System SELERs Safety and Environment Local EAPS Ethnic Affairs Priority Statement Employee Representatives EBIT Earnings Before Interest and Tax SERITs Safety and Environment Regional EEO Equal Employment Opportunity Improvement Teams EWON Energy and Water Ombudsman of WIN Works Improvement Notice New South Wales FSC Field Service Centre GEMP Government Energy Management Policy GWh Gigawatt hour (Quantity of Energy: one GWh = 1,000 megawatt hours) IPART Independent Pricing and Regulatory Tribunal IS Information Services ISP Internet Service Provider kV Kilovolts (1kV = 1,000 volts) LPG Liquid Petroleum Gas LTI Lost Time Injury (the absence of an employee for one day, or shift, caused by work related illness or injury) LTIFR Lost Time Injury Frequency Rate (the number of LTI’s multiplied by one million divided by the total hours worked by the workforce)

COUNTRY ENERGY ANNUAL REPORT 2003–2004 75 INDEX

A Employee survey 22 Employment equity 36 Advertising campaigns 8 Energy and Water Ombudsman of NSW 16 Annual report production 78 Establishment of Country Energy 35 Apprentices 20-21, 23 Enterprise Award 26 Asset Management 12 Environment 25-29 Audit and risk committee 34 Equal employment opportunity 36 Auditor 78 Ethical standards 35 B Ethnic affairs priority statement 22, 36 Executive remuneration 36 Biomass 26 Executive team 31 Board Committees 33 Board of Directors 30, 32-33 F Board meeting attendance 35 Field service centres 14-15 Board performance 33 Financial performance 5 Business alliances 14-15, 27 Financial statements 40-73 Business efficiency 5 Fleet management 28 Brand 8 Freedom of information 35, 78 C Frontline Management Program 23

Chairman and Managing G Director’s message 6-7 Gas networks 12-13 Code of conduct 35 Glossary 75 Cogeneration 27 Graduate Diploma Program 23 Community consultation 17 Green energy 9, 25-27 Company details 78 Green fleet 28 Complaints 15 Greenhouse gas reduction 27, 28 Consultants 37 Guaranteed service standards 16 Constitution 32 Contact details 78 H Contents 1 High Performance Culture 20 Controlled entities 35-36 Hydro 26 Corporate governance 32-39 Country Green 9 I Country Support 15 Indemnities 33 Crisis management 13 Independent audit report 41 Culture 5 Independent Pricing and Regulatory Customer Council 17 Tribunal (IPART) 12-13, 17, 35 Customer satisfaction 4, 15 Indigenous employment program 21 Customer service 14-17 Information services 13 Customer service centres 14-15 Insurance 35 Customer information system 9 Internet Service Provider 9 D K Dashboard 4-5 Key performance indicators 4-5 Demand management 27 Disability plan 36 L

E Legislative changes 37-39 Licence compliance 35 Employee awards 23 Lost time injuries 25 Employee development programs 23 LPG 8 Employees 20-23

76 COUNTRY ENERGY ANNUAL REPORT 2003–2004 M T

Management delegations 34 Training and Development 23 Maps ii, 14, 26 V N Vegetation management 28 Natural and methane gas 27 Virtual control room 12 Nature conservation 28, 29 W Networks 10-13 Network investment 10-11 Website 9 Network pricing 12-13 Wildlife conservation 28, 29 New customers 8 Wind farms 25-26 Non-management meetings 33 Work Improvement Notice 25 Notes to the financial statements 46-73 Waste management 28

O

Organisation overview ii Overseas visits 37

P

Peak Safety Group 24-25 Performance 2-5 Powerful Staff 20 Prices 12-13 Property disposal 35 Publications 74 Public safety 25

R

Recruitment 21, 35 Regional Advisory Boards 17 Regional map ii Renewable energy 25-27 Reputation 5 Retail 8-9 Risk management 34 Rural Advisory Group 17

S

Safety 24-25 Safety and environment improvement teams 25 Safety and environment committee 34 Safety improvement 24 Safety performance 25 Security 13 Service Milestone Awards 21 Shareholders 32 Site remediation 28-29 Solar farms 26 Sponsorships 18-19 Statement by Members of the Board 42 Statement of cash flows 45 Statement of financial performance 43 Statement of financial position 44 Storm Trackers 9 Strategy Statement 4, 15, 22, 24 Sub-transmission design 12 Supply reliability 11

COUNTRY ENERGY ANNUAL REPORT 2003–2004 77 COMPANY DETAILS CORPORATE OFFICES CUSTOMER SERVICE HOURS Bathurst 24 hours a day, seven days a week Cnr Littlebourne Street & Hampden Park Road Kelso NSW 2795 GENERAL ENQUIRIES Port Macquarie Telephone – 13 23 56 8-10 Buller Street Port Macquarie NSW 2444 SUPPLY INTERRUPTIONS Queanbeyan Telephone – 13 20 80 Level 1, 30 Morisset Street Queanbeyan NSW 2620 FACSIMILE Newcastle + 61 2 6589 8695 Suite 7, Cooks Hill Commercial Centre 235 Darby Street Cooks Hill NSW 2300 EMAIL [email protected] Sydney Level 25, 44 Market Street Sydney NSW 2000 WEBSITE www.countryenergy.com.au Melbourne Level 24, 360 Collins Street Melbourne VIC 3000 AUDITOR Auditor General of New South Wales Brisbane 234 Sussex Street Brisbane Club Tower SYDNEY NSW 2000 Level 19, 241 Adelaide Street Brisbane QLD 4000 FREEDOM OF INFORMATION (FOI) OFFICER REGIONAL OFFICES Cnr Littlebourne Street & Hampden Park Road Albury KELSO NSW 2795 174 North Street PO Box 718 Bathurst Queanbeyan NSW 2620 Cnr Littlebourne Street & Hampden Park Road Telephone – 13 23 56 Facsimile – 02 6332 6812 Dubbo 6/36 Darling Street Country Energy Annual Report 2003-2004

Grafton This report was produced at a cost of 122 Queen Street $26,881 (GST inclusive)

Port Macquarie For copies contact: 8-10 Buller Street Country Energy Queanbeyan Corporate Affairs, Annual Report Mailout 30 Morisset Street PO Box 718 Tamworth Queanbeyan NSW 2620 Electra Street or visit: www.countryenergy.com.au Wagga Wagga 59-87 Hammond Avenue

78 COUNTRY ENERGY ANNUAL REPORT 2003–2004